Welcome and timely intervention by the Supreme Court.

Apropos the news item SC seeks RBI report on action against bad loans,(ET dated 13/4/16) the fact remains that though RBI has regulatory and supervisory powers over the banks it can at best bring some pressures on the banks in the matter of maintaining provisions on bad loans. It has no authority as such to prevent the sanction and release of loans to different parties and fix the terms and conditions of the loans. Even the powers, RBI has on banks in terms of Banking Regulation Act. 1949, they can only be exercised knowing the mindset of the Government in power, the policies to be pursued by the public sector banks in particular in the grant of loans particularly in the absence of a full fledged  bond market, development finance institutions and the need to cater to the socio economic needs of the country. PSBs are functioning as if they are an extended arm of the Government to raise and deploy funds as the Government dictates. RBI has to dance to the tunes of the Government and maintain the credibility of the banking system in the interest of systemic risks, and the mobilization of savings badly needed by the economy. The court’s intervention is a welcome move as the recurring loss suffered by the economy and its stakeholders in general and share holders, depositors and employees in particular because of staggering non performing loans is something mind boggling and unfortunately no estimates have been made in the matter so far. Apart from loss of production and value addition to GDP, the loss incurred year after year through recovery process and write offs is something too big to be ignored. Besides, the erosion of values and ethics due to ever increasing bad loans sends a wrong signal to the business world. Hope SC’s intervention would help bring in the much needed discipline in the Government, RBI, and Banks and among the borrowers. An active corporate bond market would be of immense help to bring down the pestering problem of NPAs in banks.

Dr T V Goplakrishnan

( Comment sent to ET on 13/4/16).