RS. 83,000 CR!!

Source: The Hitavada      Date: 22 Dec 2018 11:00:56

PERHAPS this much money -- Rs. 83,000 crore -- was needed to spruce up the ailing public sector banking in India. Perhaps, the country could have done better with less money. Perhaps, much more money is actually needed but the Government is making do with only this much. Multiple speculations could be available at this point in time about the money that the country’s public sector banks need to make some sense out of their existence. But there is no doubt that such an infusion, which Finance Minister Mr. Arun Jaitley announced on Thursday, was an unavoidable necessity. If this were not to be done, public sector banks would have gone down to the rock bottom in a short while.

A lot of analysis has been done in this regard. Why such a huge infusion became necessary, thus, is known to everybody in the higher financial echelons as well those in the streets. Everybody knows that extraneous considerations have destroyed the other robust fabric of Indian banking in the past four decades. That was fully avoidable, of course. Yet, that did not happen because the ruling class -- that comprises political as well as financial elite -- did not want to do things the correct and hard way. It wanted an easy way out. So, squeezing the banks in public sector turned out to be the easiest option.

This squeezing, this loo, continued in two segments -- individual borrower segment, and the mass lending segment. In the former, individuals fleeced the banks with the help of political mentors; and in the latter segment, political leaders lent money to poor people left-right-and-centre. Initially, the banks sought collaterals. Later, however, following a tough snub from the Government, they relented and everything assumed the condition of a fish-market. And once collateral was no longer the issue, things became simpler for one and all, as the latest episodes -- Vijay Mallya, Nirav Modi, Mehul Choksi, and many others -- proved. The biggest casualty of all the wheeling and dealing was accountability -- no one is accountable to any one!

But now, in the past some months, the Government is seeking to rectify the ills that dogged the banking sector. The huge amount of Rs. 83,000 crore will certainly help in that effort. But what will help more will be discipline and dilligence at all levels so that nothing is taken for granted, nobody is able to indulge in fleecing and looting the banks. despite that, the way towards healthier banking in public sector is going to be long and arduous as old (and wrong) habits die hard. The task to refurbish public sector banks, thus, will be onerous and even thankless.

But that has to be undertaken all right in a no-nonsense manner, in a missionary manner. One of the most critical factors in this effort is going to be the task of limiting the brazen seekers of loans by monied elite. They have connections, and they have money to greese the palms. That make things easy for them. The Government will have to ensure that this greesing does not take place at all. And this may mean some sacrifice on the political front. The ruling class, thus, will have to make clear decision that it will not yield to its own temptations to corner cheap money. The decision to cleanse public sector banking, thus, will have to be taken at the highest level and implemented down the line without fear or favour. If the ruling class can achieve this kind of moral standard, then things will move in the right direction.

The biggest self-restraint, thus, will have to come from the Government and its political element that has always had a sway over matters even without official mandate. Indian banking in public sector went bad only due to this factor over the years. But then, there was also another factor that brought failure -- the Reserve Bank of India whose leadership could not assert itself at the right time and in the right manner. The RBI could not introduce unwavering discipline and even yielded to political pressure, no matter who was in power. As part of the ruling class, the RBI leadership should have asserted itself professionally. At least now, it should do that -- in Government’s partnership.