The Centre’s decision to infuse Rs 2.11 lakh crore into banks under the recapitalisation plan is certainly a good move, but public sector banks (PSBs) must not get complacent in their fight against the mounting non-performing assets (NPAs), which are mounting like anything. The Centre, Reserve Bank of India and Union Finance Ministry must work hard to show tangible results in their efforts in recovering money from the borrowers. Recapitalisation is not a great hope against non-performance and inability to discharge responsibilities with honesty. RBI Governor Urjit Patel has rightly said that Rs 2.11 lakh crore bank recapitalisation plan is a ‘monumental step forward’ in safeguarding India’s economic future and a comprehensive policy would be put in place to address the challenges faced by the sector.
Patel is of the view that ‘economic history has shown us repeatedly that it is only healthy banks that lend to healthy firms and borrowers, creating a virtuous cycle of investment and job creation. The Government of India’s decisive package to restore the health of the Indian banking system is in the view of the Reserve Bank of India, a monumental step forward in safeguarding the country’s economic future.’ Though many economists and former top functionaries of RBI have different take in this regard, the matter of the fact remains that borrowers in a position to return loans must not hesitate in pay the money back to the lenders. Rs 2.11 lakh crore would be infused in PSU banks over two years, of which Rs 1.35 lakh crore would be through recapitalisation bonds and the remaining Rs 76,000 crore would be from the budgetary support and market raising.
It is a common knowledge that ‘a well-capitalised banking system is a pre-requisite for stable economic growth,’ but turning blind eyes to NPAs eat into the vitals of banking system. NPAs of banks have more than doubled to Rs 7.33 lakh crore in June 2017 from Rs 2.75 lakh crore in March 2015. “For the first time in last decade, we now have a real chance that all the policy pieces of the jigsaw puzzle will be in place for a comprehensive and coherent, rather than piece- meal, strategy to address the banking sector challenges,” Patel said. The interest burden on the government for issuing recapitalisation bond would be about Rs 8,000 crore to Rs 9,000 crore. Recapitalisation will certainly allow the banks to have a calibrated approach in addressing their balance-sheet issues in a better manner and are also in a position to use fresh capital injection for immediate credit creation.
It remains to be seen if the recapitalisation of public sector banks amount to virtually pardoning corporates who have not returned loans now totalling Rs 11.5 lakh crore. Needless to say that banks are burdened by humongous NPAs. In the past over three, the Centre has written off loans to the tune of Rs 2 lakh crore. The public funding of recapitalisation will never be liked by the people if the corproate houses are not forced to return the borrowed money. Public must not be used as a tool to bail out the banks. Total loan waivers for the farmers committing suicides due to agrarian distress are being refused, while the corporates are being encouraged to run away with the loans that they have taken from the monies deposited in banks by crores of Indians.
(The writer is an independent commentator on socio-political and economic issues. Views expressed are his personal)