#BankRecapitalization

Only  Rs  7,000  per  Family  ?

Gujarat Samachar ( 25 Oct 2017 ) carries following news report :

( loosely translated by me from Gujarati )

“  To bail out Public Sector Banks , each and every family will need to fork out Rs 7,000

Banks may not lend to citizens but citizens must pay

This amount ( Rs 2.11 lakh*crore ) will have to come from the government treasury . That means , this is tax-payers’ money !

Finance Minister calls this a “ Bold Step “  !

In normal course , banks are supposed to help out the citizens but , in India , it is other way around !

That is not a “ Bold Step “ !

At present there are 30 crore “ families “ in our country . Hence this bail out works out to Rs 7,000 per family

So , this amount will get transferred to these bankrupt banks without the knowledge of these families

So what is government doing ? Transferring citizen’s tax-money instead of reforming the bank administration !

This will only lead to worsening of their position

This has happened earlier also . History repeats without banks mending their ways !

If they are guaranteed repeated bail out , where is their incentive to improve ?

In the end , only the tax payers will foot the bill

More than 2 years ago , I sent the following blog to the Policy Makers :

Tuesday, 23 June 2015

Bank  Re-Capitalization  ?

Here is a layman's understanding :

*   Bank executives give Rs 4 Lakh Crores worth loans to   Industrialists / Businessmen ( who , sometimes happen to be close relatives / friends )

   

   

*   Bankers " forget " to examine past records of loan-repayments by these individuals 

   

*  Banks do not share among themselves info about " black-listed " borrowers

*  Banks " forget " to inquire if a loanee is a " Benami " company

*  Banks do not incorporate stringent clauses in loan agreements (on purpose )

*  Banks adopt " Forget & Forgive " approach to defaulters

*  For loan recovery , bankers wait for other  bankers to take the lead

*  Before taking action , bankers check-out with people in power

*  When sinking under the burden of NPA , bankers run to Government of India to bail

    them out through " Bank Re-Capitalization "

     

*  Government oblige by giving money to stressed banks, so that they can survive

*  Government rationalize its bail out by saying, " depositors must be protected " .

    Sounds so reassuring  !

*  Government then goes out and raises taxes ( direct + indirect ) to balance its books (

    Current Account Deficit ? )

   

In a nutshell :

*  Eventually , honest tax-payers foot the bill, one way or the other 

*  7,000 + loan-defaulting swindlers spend vacation in Switzerland with family ( and

    their politician friends ) - till they are ready to borrow more !

   

*  Bankers vie with each other to " Re-Schedule Payments " and advance fresh loans to

    pay off old loans ( Rs 4 lakh Crores of NPA ).

    If EU / IMF can do this for Greece , why cannot we ?

   

*  Government will take pride in " Bold Banking Reforms "( to please IMF ? )

*  As a Nation , we are very compassionate !  We cannot let any institution die !

    We are obsessed with keeping it alive at any cost . We must, forever, keep it alive

    with artificial ventilation / blood transfusion !

   

 

    It is time to re-think : 

    When a person or an Institution just cannot be kept alive , it must be allowed to die ,

    in a dignified way !

 

    Would it not be far better to protect the small bank-depositors by returning their

    deposits , rather than infuse Rs 4 lakh Crores into these banks , by way of re-

    capitalization ?

Am I missing out on something that economists know better ?

25  Oct  2017

www.hemenparekh.in / blogs