INDIAN BANKING: HOW BAD ASSETS WERE CREATED AND WHAT THE FUTURE HOLDS
Tamal Bandhopadhyay Business Journalist and Author
The CEOs of
India’s debt-laden state-owned banks probably celebrated Christmas ahead of its
arrival in December – after an extremely stressful year, relentlessly chasing
rogue corporate borrowers for recovery of the monies lent. Finance Minister
Arun Jaitley played Santa Claus for them by seeking Parliament’s approval for Rs.
410 billion capital infusion in these banks.
had budgeted for Rs. 650 billion fund infusion during the current year, of
which Rs. 420 billion is still to be allotted. This means, Rs. 830 billion will
flow into the public sector banks (PSBs), taking the total sum to Rs. 1.06
trillion by March, 2019.
2017, the government had announced a staggering Rs. 2.11 trillion capital
infusion in phases into PSBs that have little less than 70% share of the assets
of the Indian banking industry. The new package, for which Parliament’s nod has
been sought, is part of that.
between 1985-86 and 2016-17, in little over a decade, the government had
injected Rs. 1.5 trillion into these banks; the bulk of this flowed in since
the global financial crisis of 2008, triggered by the collapse of the iconic US
investment bank Lehman Brothers Holding Inc.
To ward off the
impact of the crisis, the Reserve Bank of India (RBI) flooded the banking
system with money and brought down the policy rate to a historic low, less than
the savings bank rate which was regulated then. With too much money, coupled
with pressure from various quarters to lift consumption, banks lent recklessly
and that led to the creation of bad assets.