The government has persisted with throwing good money after bad in its continuing efforts to revive public sector banks, all of which are debt-laden and sick. These banks are weighed down by NPAs and floundering under mis-governance, but the government is wrongly trying to steady them with taxpayers’ money. The recent announcement of transfer of Rs 48,239 crore to 12 banks is part of the mega drive which started in October 2017 to stimulate these banks. Rs 90,000 crore was transferred in 2017-18, and it did not turn any bank around. By the end of the financial year, the banks reported more losses than in the past and the last quarter saw an additional Rs 1 lakh crore of NPAs. This was because of the well-considered decision of the Reserve Bank of India (RBI) to disallow and discontinue the old scheme of restructuring loans.
The bad loans are still high, though they have not increased much after that. When the recapitalisation programme started the larger part of the funds were given to the stronger banks to enable them to improve the outgo of credit. But the latest tranche has been distributed among 12 banks, without observing the earlier norm, to ensure that they are taken out of the RBI’s Prompt Corrective Action (PCA) restrictions. The PCA framework was imposed by the RBI on banks with poor financial health to stop them from lending freely. This was necessary because it was such lending on the basis of wrong considerations that landed them in trouble. The total NPA burden of all public sector banks was over Rs 9.6 lakh crore as on last March. The banks wanted the government to persuade the RBI to part with a portion of its reserves. This seems to have been done.
With the Lok Sabha elections approaching, the government wants to increase the flow of credit to businesses, especially those in the small and medium sector, after having hurt the sector badly through demonetisation and faulty implementation of GST. The RBI under former governor Urjit Patel had taken a strong stand on the handling of NPAs by banks. But the new dispensation under Shaktikanta Das is seen to be more amenable to demands from the government. Credit needs of the economy should be met, but that should not worsen the health of the already sick banks. Most of the credit requirements of the economy are met by public sector banks. They also have to deal with problems like those arising from the waiver of agricultural loans. Instead of pushing its political objectives with taxpayers’ money, the government should have persuaded the banks to improve their governance and manage their money better.