33 Billion Dollar Bailout for Banks in India: Where is the transparency?

The Union Minister for Finance and Corporate Affairs, Shri Arun Jaitley addressing a press conference, in New Delhi on October 24, 2017.
The Finance Secretary, Shri Ashok Lavasa, the Revenue Secretary, Dr. Hasmukh Adhia and the Principal Director General (M&C), Press Information Bureau, Shri A.P. Frank Noronha are also seen.

Government has announced that it is bailing out public sector banks (PSBs) with a capital infusion of of Rs 2.11 lakh crore (about USD 33 billion). The move is both expected and welcome as it will help the entire banking sector of India to start on a clean slate. However the details remain a lot sketchier.

For one the banks are still calling their bad loans as non-performing assets (NPAs) and not their losses. As long as these loans remain on banks’ balance sheets as any form of asset, their valuation will be questionable.

Second the details of recapitalization are too sketchy. In its presentation, the government declared that Rs 1.35 lakh crore (USD 20.7 billion) will be through ‘recapitalization  bonds’ and rest through budgetary support and market raising. The big question that remains unanswered is, who will release these USD 20.7 billion worth of bonds – banks or government. If its public borrowing then its accounts for almost 0.01% of entire GDP of the country, now will it affect overall public borrowing for the year?

Then there is the question of the losses themselves, while the tax payers will save our banks for their bad business decisions, we don’t even know what those decisions were. While we do know just 12 cases contribute to 25% of all NPA we have no idea as to which entities caused the loss. While many have jumped to the defense of officials who disbursed these loans the fact that they took wrong decisions is not hampering any career progression what so ever.

This is a bad bail out is evident in the fact that we are not aware of any big entity being even threatened of liquidation for recovery of these big loans.

Also another part of this picture is the government control on the said banks. Majority stake of all the PSUsis with the Government. With the capital injunction, Government’s equity into the banks is only going to increase. In effect the bad business decision makers will get more say in future business decision while steaming ahead with no liability of past.

It’s the public exchequer that will be footing bills for bad business decisions and we the tax payers will remain blissfully unaware of who looted us.

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