Call Us: +91-11-23073004, 23073042 | Mail: info@bureaucracytoday.com

Editor speak »

    December 2017

Fresh hope amid economic gloom

Editor-Post

The announcement of the $30 billion recapitalization package by Finance Minister Arun Jaitley to revive the capital-starved Public Sector Banks has regenerated fresh hope amid the gloom caused by the recent Indian economic conundrum.

While investors across the world have welcomed the series of the reforms introduced by the Modi Government which include demonetization, the enactment of Goods and Services Tax and the Insolvency and Bankruptcy Code, and the launching of the digitalization drive, more specific actions were expected in order to face the mammoth challenge caused by the rising Non Performing Assets of PSBs.

This addition of Bureaucracy Today brings you a comprehensive analysis of the rising NPA’s, and recap bonds and their possible implications for the Indian economy, especially those on the fiscal and external fronts.  While the Chief Economic Advisor, Arvind Subramanian, has cleared the air by stating that the infusion of fresh capital is going to be differential incentivizing better performers, it still remains unclear how the Government plans to raise and allocate the capital via Recap Bonds.

The introduction of Recap Bonds will not only aid in meeting the higher provisioning and debts write-off needs of PSBs but also help in adopting the BASEL III norms which mandate a higher capital adequacy ratio. However, there is no exaggeration in saying that the recap drive is just a stepping stone on the path of economic recovery; there is still a long way to go. Also, it would remain interesting to see that whether the whole drive translates into a better credit growth rate and hence the investment climate. 

Though the present political dispensation has been correct while terming the bad loan problem a legacy issue, it cannot move away from the charge of a much-delayed response which exponentially scaled up the problem. The recap drive also involves the problem of moral hazard as it would be incentivizing the wilful defaulters at the cost of the taxpayer’s money.

Besides, one should not move away from addressing the root causes responsible for the generation of stressed bank assets. The Government must devise mechanisms to keep a check on irrational exuberance often shown by lenders, assess the project viability diligently, and ensure faster environmental clearances. Also the broader line of reforms including Mergers and Acquisitions, privatization, management reforms, and empowering the Bank Board Bureau should be given prime thrust to reach a logical conclusion.

    

WRITE A COMMENT

...
Sign in with
Or procced without registration

» Previous Editorials:

December 2017, November 2017, October 2017, September 2017, August 2017, July 2017, June 2017, May 2017, April 2017, March 2017, February 2017, January 2017, January 2017, December 2016, December 2016, November 2016, November 2016, October 2016, October 2016, September 2016, September 2016, August 2016, August 2016, July 2016, July 2016, June 2016, May 2016, May 2016, April 2016, April 2016, April 2016, March 2016, March 2016, February 2016, February 2016, January 2016, January 2016, December 2015, December 2015, November 2015, November 2015, October 2015, October 2015, October 2015, September 2015, September 2015, September 2015, July 2015, July 2015, June 2015, June 2015, May 2015, May 2015, April 2015, April 2015, March 2015, March 2015, February 2015, February 2015, February 2015, January 2015, January 2015, December 2014, December 2014, November 2014, November 2014, October 2014, October 2014, September 2014, September 2014, August 2014, August 2014, July 2014, July 2014, June 2014, June 2014, May 2014, April 2014, March 2014, February 2014, January 2014, December 2013, November 2013, October 2013, October 2013, October 2013, October 2013, September 2013, August 2013, July 2013, June 2013, May 2013, April 2013, March 2013, February 2013, January 2013, December 2012, November 2012, October 2012,