Bankers Dilemma

In Mayyas opinion, the degeneration of the banking system, which we are witnessing today, is a result of the demoralisation that has crept into the bank personnel. This is primarily on account of persecution, or the threat of persecution faced by them for every asset which fails to perform, even temporarily, and for whatever reasons. What hurts the most is that this action does not differentiate between malintent and wrong financial decisions.

Loss assets arise out of a number of causes, and fraud is the least of them. Barring the one-off cases, like M S Shoes, says Sukthankar, fraud or mismanagement by the bankers, has never assumed alarming positions.

 

Financial decisions going wrong is an inherent risk of the financial world, where decisions have to be made based on some projections and assumptions about the future.

Sukthankar says, This inevitably leads to a risk averse attitude. Risk taking is fundamental to the banking operations. In the absence of this, bankers refuse to take any decisions. Instead of putting their money in the corporate sector and promote the rapid development of the economy, they invest in risk free government securities, because this insulates them from any kind of allegations of financial irregularity or laxity on their part in case some projections do not come true in the future.

This is what we are witnessing in our system today, where despite availability of funds with the banks, the industry is facing an acute shortage of funds.

The situation is so absurd that despite the credit squeeze to the industry, banks are refusing to take further deposits, since in the absence of investing in the industrial sector, which gives higher returns but is associated with higher risks, the bankers prefer to invest in the low returns generating government securities and other related instruments because of the safety associated with the sovereign guarantee. The generation of such low returns does not justify the acceptance of further deposits.