Stress on profitability: Letter to BS on options to de-stress PSBs

This refers to “Options to de-stress public sector banks” (February 8). It is appropriate to go back in time when pre-nationalised banking catered to affluent sections in urban and metropolitan areas. After nationalisation banks were compelled to change by financing under various government-sponsored schemes from where the concept of priority sector banking took shape. Although such schemes were good on paper, ground reality portrayed a different picture with faulty end use and defaults in repayment of credit. Periodic loan waivers further encouraged defaults in repayments and consequent erosion of capital. The present level of non-performing assets stands testimony to this, demanding restrengthening of capital. There is an uneasy mix of continuing with the implementation of targeted lending through government-sponsored schemes, loan recovery and profitable functioning.

 

The stress on profitability has returned, the wheel has not turned a full circle as perceived and is instead being governed by a changed global economic scenario. Government-sponsored lending exists in one form or the other. Revenue-oriented banking and emphasis on profits to strengthen the capital base is nevertheless gradually returning to business strategies. Stock markets today play a more dominant role with share and bond issues funding capital. Although interest payments are involved in these instruments it ensures a stronger capital base for the immediate present for industrial survival. The levels of capital should be the measure to set lending targets without taking recapitalisation by the government for granted. Instead inflow of government capital should be emphasised on weaker banks with the responsibility for effective management of resources resting on the stronger ones.

           

C Gopinath Nair Kochi

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