Published on May 25, 2019
IASbaba's Daily Current Affairs
Daily Current Affairs IAS | UPSC Prelims and Mains Exam – 25th May 2019
IAS UPSC Prelims and Mains Exam – 25th May 2019
Archives
(MAINS FOCUS)
ECONOMY
TOPIC: General studies 2 and 3
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
- Inclusive growth and issues arising from it.
Resolving NPA Crisis: II
Introduction: In order to put the slowing economy back on track economic reforms needs to be taken. Reforms in banking must surely be top priority.- Banks were forced by the RBI and the central government2 to disclose evergreened loans and provision for them.
- A new Bankruptcy Code was legislated to allow lenders to take charge of the resolution process.
- Operational issues at public sector banks (PSBs).
- Putting in tax payers’ money to keep them afloat.
- Investors and depositors have very little assurance that a similar NPA crisis will not recur in future.
- It led banks concentrating their loans in a handful of borrowers. This need drastic overhaul.
- RBI recently imposed tighter curbs on the group-level and firm-level exposures of banks, capping them at 40 per cent and 20 per cent respectively of Tier-1 capital. But such limits cannot substitute for the PSBs’ lack of in-house talent in credit and project appraisal, which needs urgent fixing.
- RBI needs to work on internal early warning systems that leverage analytics to head off credit bubbles too.
- While mis-judgement can be condoned, strict enforcement action needs to be taken against bankers who willingly colluded with corporate borrowers to evergreen loans.
- There’s also need for a thorough overhaul of recruitment policies at PSBs, greater accountability from their top managements and Boards and performance-linked compensation.
- Political interference has played an egregious role in diverting bank funds to crony capitalists.
- Fixing this issue requires deep-rooted governance reforms that distance the management and Boards of PSBs from their promoter — the Central government.
- A roadmap for the transfer and gradual dilution of the government shareholding in PSBs is now critical, as is the strengthening of the toothless Bank Boards Bureau.
- RBI on its part needs to work through recent setbacks to the IBC process to put it back on its feet.
- In order to put the slowing economy back on reforms in banking must surely be top priority. Comment.