Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.0
Article rating: No rating
Article rating: 4.0
Article rating: 5.0
Article rating: No rating
Article rating: 4.0
Article rating: 3.8
Article rating: 2.9
Article rating: 2.3
Article rating: No rating
Article rating: No rating
Article rating: 4.0
Article rating: No rating


Public lenders focussed on bad debts than credit growth: Economic Survey

Author: IANS/Monday, August 14, 2017/Categories: Banking & Financial Services

Public lenders focussed on bad debts than credit growth: Economic Survey

New Delhi - The public sector banks (PSBs) are more focussed on limiting losses from the previous bad debts rather than seeking new lending opportunities, and thus cannot give low demand as an excuse for their credit slowdown, according to the mid-term Economic Survey.

The Economic Survey Volume II 2016-17, tabled in Parliament, said: "The problem is that public sector banks are in damage limitation mode rather than seeking out new clients and opportunities. So, how can they regain their true function of providing credit to support economic growth? What actions will be necessary to ensure that problems will not recur?" 

"Inadequate demand cannot be the full explanation for the credit slowdown because the growth in lending by private sector banks is robust and much greater than for the PSBs," it said.

The Survey, authored by Chief Economic Advisor Arvind Subramanian, noted that burdened by stressed assets and atmosphere of uncertainty that existed for some considerable time, banks, especially those in the public sector, have focussed on their non-performing asset (NPA) problem than on new lending. 

Highlighting India's Twin Balance Sheet (TBS) challenge, the earlier Economic Surveys have emphasised that tackling this challenge will require four R's - Recognition, Resolution (which targets corporate balance sheets), Recapitalisation (which targets bank balance sheets) and Reform.

The government and the RBI have taken important actions to address the Twin Balance Sheet challenge. It is to be hoped that they will work expeditiously. But even as they play out, thinking about a strategy - of complementing resolution with reform and recapitalisation - to create a banking sector that can help revive credit, investment and growth must be an ongoing priority. 

"Even as the new measures aimed at resolution unfold, it is worth thinking about the other 'R's in the context of a strategic approach to the banking sector," the Survey said.

The most important element, surely, is the fourth R - Reform. Three elements will be key to any reform package. First, rescues can be selective. The prompt corrective action (PCA) framework can be invoked to ensure the worst performing banks are winnowed out of future lending and shrunk in size over time. Rescues could then be extended solely to the group of viable and near-viable banks. 

Second, the role of private sector discipline could be expanded, including by allowing, in some cases, majority private sector ownership. Third, these measures should be coupled with specific actions, for example recapitalising banks and strengthening their lending procedures and risk management frameworks, the Survey said.

Over the past few years, the government and Reserve Bank of India (RBI) have moved decisively on recognition and most recently on resolution. In May this year, the government had passed an ordinance to promote resolution. 

The RBI followed up decisively by identifying 12 loan accounts to be taken up under Bankruptcy Law. 

Meanwhile, to facilitate reform, the RBI has placed six weak banks under the Prompt Corrective Action (PCA) framework, forcing these banks to start reducing the scale of their banking operations, amongst other measures.

"It is to be hoped that these actions will decisively address the TBS challenge. Some doubts have been expressed by observers on the scope for delay in, and stymieing of, the resolution process because of the relatively untested procedures and the inherent difficulty in writing off debts to the private sector," the document said.

Early and prominent successes will help quell these doubts and policy-makers are closely monitoring progress, it added.

Print Rate this article:
No rating

Number of views (297)/Comments (0)

S Vijaykrishnan
S Vijaykrishnan


Other posts by IANS
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free