Source: The Hitavada      Date: 24 Dec 2017 10:22:49

RUMOURS floated by some people in a section of media and on social networking sites that some of the public sectors banks would be closed down by the Government has created a fear psychosis in the society. Restrictions imposed on the Bank of India by the Reserve Bank has made some people panicky, who are fearing for the worst. However, a clear-cut assurance given by the Government and the Reserve Bank of India that no bank will be closed down, should put at rest all the rumours.

It is a fact that all is not well with public sector banks, thanks to ever mounting non-performing assets (NPAs) running into lakhs of crores of rupees. The situation has assumed an alarming proportion because no corrective steps were taken by the previous Government to prevent banks from incurring huge losses. However, the present Government is taking several measures to introduce fiscal discipline in the working of banks, in a bid to put them back on the rails. The decision of the RBI to initiate a prompt corrective action against the Bank of India was a part of such an action. There is nothing more to it. Hence, there is no need for the people to get panicky as their deposits are not going to be affected, as assured by the Government and the RBI. The RBI action against the Bank of India is an early warning exercise, aimed at cautioning the bank not to cross the red line.

The restrictions imposed on the public sector bank is not going to affect the credit flow. The former Governor of the RBI, Mr. Raghuram Rajan, in his report had suggested that the Government must ensure a smooth credit flow to business enterprises by banks in order to ensure rapid economic growth . This principle is being steadfastly adopted by the Government. Its only worry is that huge loans given by the banks should not add to the NPAs. Hence the restrictions. This is a prudent decision. Because, earlier, huge loans were extended to all and sundry without ensuring their repayment capacity, leading to huge NPAs. This has pushed most of the public sector banks in the red. With the latest corrective action by the RBI, public sector banks will hopefully be saved from falling into the NPA trap.