Embedded Files
FEBRUARY 2021 Download this Article
Indian Banking system has transformed from being slow, bureaucratic and conservative to modern and entrepreneurial. Never in its history, trust and confidence been in question.
The fact of the matter is that Indian Banks have been the icon of trust. Whenever there was a search to store money and valuables safely, it has been the Banks.
For a long time, it has been like this. Bank’s integrity has been part of Indian culture and tradition.
“
Banking is the core of Indian culture and tradition
The story of Indian banks must be seen in the context of a socioeconomic lens. Sustaining the colonial rule for two and half centuries, impoverish, struggling to survive arbitrariness of British tax systems, saving for the rainy day has been the inherent value system of all Indians.
Every child was given a home piggy bank (gullak) to start saving their pocket money. 100% of Indian housewives have a secret gullak. No wonder India became a nation of savers and thrifts.
Whether it is a home piggy bank or national banks, banking is the core of Indian culture and tradition.
Before digitization and mobile banking, the bank building was central to economic activity. On payday, all roads led to the teller.
“
FDRI is assumed to be a precursor of an imminent banking crash
Today, those very institutions of integrity and safe deposits are under serious threat. It is not because of one-off fraud. It is primarily because we, as Indians, have started to lose the TRUST of our banks. As citizens, there is an accelerated growth of scepticism.
I have identified three killer diseases that Indian Banks are suffering.
Growing NPAs (Non-Performing Assets) – The volumes of NPAs are very high, known to everyone. It is nearly Rupees 8 Lakh Crores in 2019 (approximately $ 100 Billion).
Source: Centre for Financial Accountability
What is more dangerous is the accounting treatment of those NPAs? The government and banks are unable to rescue these NPAs in reality, despite various measures.
So, there are attempts to treat them differently in accounts, such that banks balance sheets get a facelift with NPAs parked elsewhere.
The Indian Banks’ Association (IBA) has submitted a proposal to the finance ministry and the Reserve Bank of India (RBI) to create a ‘bad bank’ consisting
of approximately Rs 75,000 crore of non-performing assets (NPAs). “A bad bank is a corporate structure which isolates risky assets held by banks at one place.”
Alleged Collusion and Crony Capitalism
It is a well-known fact that frauds are impossible without the blessing of someone influential in the political system. Politics in India needs extensive funding, and that drives up the cases of scams. It is the cost of doing business in India.
Here, frauds are also those NPAs that have been unrecoverable due to political backing. There has been minimal recovery or few mild legal proceedings against high profile, high-value cases of NPAs and fraud.
An example is set for the public that high and mighty can get away, quickly and conveniently. All major political parties have found themselves in this game.
Trust Eroded
One of the measures to tackle Indian Banks accumulating NPAs was to propose the FDRI (Financial Resolution and Deposit Insurance) bill in 2017. It is a copy-paste of the US bill for deposit insurance.
Though the motive seems to be genuine till the time devil appears in the fine print.
“
A bad bank is a corporate structure which isolates risky assets held by banks at one place
While the deposit insurance in the US is $250,000 for India, it is proposed as Rs. 1,00,000 (less than $2000). FDRI has done two harms – one; it has made
the retail and household depositors nervous about their life savings and social security; secondly, it has made everyone insecure about a crisis in future. FDRI is assumed to be a precursor of an imminent banking crash.
The consequences of these three diseases look grave. Investors, Indian and foreign, who were once highly confident and trusted the Indian banking system, as it successfully withered the global financial crisis of 2008, have started to be bearish and insecure.
The country’s general economic climate has turned into grey weather, even though there are claims of 7% growth in GDP. The SME borrowers face extreme difficulty getting business loans that are damping the entrepreneurial spirit to detrimental effect.
List of Recent Collapsed Banks and financial institutions as of 2020:
Laxmi Vilas Bank
IL&FS
DHFL
Yes Bank
PMC
The only ray of hope for a cure to these killer diseases will take robust, big bang doses of transparency, correction, strict law enforcement and justice. Else, India is on a definitive path to be another Greece.
REFERENCE:
https://www.cenfa.org/wp-content/uploads/2020/07/Titanic-Moment_-NPA-study-FINAL-1.pdf (Table-7)
To Comment: connect@expertx.org
Please indicate if your comments should appear in the next issue
Support Us - It's advertisement free journalism, unbiased, providing high quality researched contents.
Google Sites
Report abuse