New Delhi March 24 (IANS) There is no political economy consensus on tackling the mounting problem of bad loans of banks which cannot be resolved by their simple recapitalisation a former head of India s central bank said on Friday.
The fact that the overwhelming proportion of non-performing assets (NPAs) are with the public sector banks shows that the reform will have to go much beyond simply recapitalising the banks former Reserve Bank of India (RBI) Governor Y.V. Reddy said here while delivering the Raja Chelliah Memorial Lecture on Fiscal-Monetary Policy Interface organised by National Institute of Public Finance and Policy.
Besides professional approach and capacity to evaluate lending proposals and risks cannot be expected in public-owned institutions bailing them out periodically with taxpayers money he said.
The magnitude of the problem can be guaged from the NPA figures of state-run banks which at the end of the current fiscal s second quarter that ended in September rose to Rs 6.3 lakh crore as compared to Rs 5.5 lakh crore at the end of the first quarter.
Elaborating on the issue Reddy said NPAs are a balance sheet problem and therefore a substantive issue.
Recapitalisation is actually putting resources in an enterprise that does not have the capacity to pay back...ultimately the risk comes back to the public he said.
The cumulative risk to the sovereign because of the real sector and financial sector interface is huge he added.
Reddy said the common thread between fiscal and monetary policies and the financial sector are the state-run banks.
The future of the financial system and the modernisation of the financial sector depends on how we overcome the intractable problems of public sector banks.
There seems to be a political economy consensus of for no change or minimal change he added.
--IANS
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Bad loans problem can t be solved by banks recapitalisation
