IS RBI RIGHT IN ORDERING PSU BANKS TO CUT RATES?

Dr.T.V.Gopalakrishnan , Mumbai , says: The Govt is not expected to issue orders direct to psu banks.The regulation and supervision of banks is the prerogative of the Reserve Bank and if at all the Govt wants banks to act in a different manner, it can take up the matter through the Reserve Bank.This approach of the Govt shows its dominance and arrogance as owner of the PSU banks ignoring RBI's presence and entitlement in terms of statutory provisions under the Banking Regulation Act, 1949 to issue directions to the PSU banks. This sort of dual control on banks will only weaken the banking system as it happens in Cooperative Banks.This way of excercising control over banks by the Govt is neither advisable nor desirable nor permissible in the interests of the healthy and sound banking system. The banking system in India is strong and the credit goes to the Reserve Bank and this sort of interference from the Govt would only undermine the powers of the Central Bank and that is not good either for the economy or for the financial system.
20 Apr 2012, 0816 hrs IST
(This is in response to an opinion poll in ET dated 20/04/12.This appeared in ET on 20/0412).

NPAs in PSU banks increase by 51%

The increase in NPAs of PSU banks by 51% is something of very high order and there is no justification of whatsoever to make the tax payers to bear the loss of banks on account of NPAs. The basic cause of NPAs is the undisciplined behaviour of the borrowers and they need to be made to behave responsibly when they use deposits of banks which belong to public. It is something not digestible to bear the loss of Kingfisher like borrowers by public as the loss of PSU banks is ultimately borne by the GOVT using tax payers money. The only way to tackle NPAs of banks is to make the borrowers to compulsorily contribute towards a fund in banks books based on borrowers performance assessed on a continuous basis and build up this fund over a period to absorb the losses on account of NPAs. It is more sensible to make the borrowers particularly the bad ones to bear the cost of NPAs rather than by other stakeholders.Loss on account of NPAs has to be borne only by the bad borrowers.
(This appeared in BusinessLine dated 21/03/12)
from: Dr.T.V.Gopalakrishnan
Posted on: Mar 21, 2012 at 08:30 IST