Recapitalization of banks

While recapitalization is essential to ensure banks survival in the backdrop of accumulated Non performing assets and poor credit growth,the Governance efficiency in banks independent of the Governments' interference is equally paramount to sustain the banking in their banking business. While the efforts to recover the bad debts should continue without any relaxation, at the same time the banks should  put all efforts to prevent generation of fresh Non performing Advances and save themselves from getting extinct from the  business through loots of the borrowers. The seeds of NPAs are always sown during credit expansion and the recapitalization approach prompt banks  to expand credit and they have to be extremely careful in selecting the borrowers and area of credit expansion.Prevention is always preferable than curing the disease.Banks need to be very wise and highly professional in safeguarding  their business of acceptance of deposits for the purpose of lending and not losing the depositors' money through the art of lending to bad borrowers. It is high time the banks realize that the depositors are becoming wise and they chose their banks based on their health, financial soundness, standards of customer service, regulatory compliance and above all efficiency and independence of management in running the banks.

Dr T V Gopalakrishnan

Make Public Sector Banks Perform and Accountable.

Unless  and until the Public Sector Banks perform, the economy cannot  be expected to perform the way the PM , the IMF and the whole world expect in these days of reform , perform and transform and echoed eloquently in the recently held World Economic Form at Davos. No doubt the banks need recapitalization, but more than that what they need is a professional approach supported by an independent thinking and acting Board, Management and staff and is made accountable to the Regulator first and through the Regulator to the parliament. The expectations from the Boards Bureau were very high and unfortunately along with banks, the Bureau also turned Non Performing resulting in the far below  performance of the economy and its over all potential. The Trust in banks is fast eroding  thanks to their  staggering non performing advances,non accountability of the Boards and the Regulator and lack of independence,functional autonomy and the bail in proposal mooted in the proposed FRDI bill to bail out bad borrowers and bad banks using depositors money.The deposit growth in banks is stagnating and the customer service is deteriorating beyond imagination. Capital formation through household savings is declining due to erroneous tax policies and incentives to save by all means including high cost of living. Periodical recapitalization of banks and tolerance of accumulation of bad loans and write off of loans have been acting as moral hazard and both the banks and borrowers develop a tendency to relax and exploit .The need for banks to perform is paramount and it requires development of bond market to support infrastructure development, capital market reforms to enable banks to resort to take out finance to supplement their own resources and administrative changes to make banks accountable for all their lapses in deposit front, advances area and provision of  Customer service to expand Customer base and retain them.    

Dr T V Gopalakrishnan