Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Banking/  India must not repeat mistake of neglecting bank recapitalisation: Viral Acharya
BackBack

India must not repeat mistake of neglecting bank recapitalisation: Viral Acharya

'This lack of focus is tantamount to kicking the can down the road and jettisoning financial stability for short-term gains,' says the former RBI deputy governor
  • Restoring banks' capital is critical for aiding a meaningful recovery, but there has been little focus on the matter, says Acharya
  • Former Reserve Bank of India Deputy Governor Viral Acharya (Reuters)Premium
    Former Reserve Bank of India Deputy Governor Viral Acharya (Reuters)

    Mumbai: India is neglecting bank recapitalisation as it focuses on debt moratoriums and interest waivers for borrowers amid the COVID-19 pandemic, a former central bank official told Reuters on Monday.

    Indian banks are saddled with over $120 billion in bad debt, and in severely stressed conditions the bad-loan ratio could nearly double by March, according to Reserve Bank of India projections.

    Restoring banks' capital is critical for aiding a meaningful recovery, but there has been little focus on the matter, former RBI Deputy Governor Viral Acharya said.

    "This lack of focus is tantamount to kicking the can down the road and jettisoning financial stability for short-term gains," said Acharya, who recently wrote a book titled the "Quest for Restoring Financial Stability in India".

    "This repeated mistake has prevented India from recovering well from adverse shocks," Acharya said. His comments came weeks after India offered to waive the compounded interest component on all loans up to 2 crore following a legal challenge to the terms of a six-month moratorium.

    Designing moratoria and forgiveness like farm-loan waivers that favour borrowers excessively in the short term has been detrimental to a sound recovery of credit growth in the medium term, Acharya said.

    Though the latest one-time restructuring package has been fine-tuned to ensure it cannot be misused, it still has a little bit of a "band-aid and short-termism" approach to it, he said.

    Funds to provide for the losses that would be incurred through restructuring should be set aside so that banks do not strangle growth as the economy begins to recover after the pandemic.

    "If the government doesn't wish to recapitalise banks in a timely manner, then it must ensure that the contours of debt moratoria and forgiveness package aren't so generous that banks won't be in a position to lend well during the recovery phase, which is likely around the corner," Acharya said.

    "It would be good to learn from the past mistakes and start the work of repairing bank balance sheets at the same time as giving a soft landing to bank borrowers and the real economy.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

    Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 19 Oct 2020, 06:04 PM IST
    Next Story footLogo
    Recommended For You
    Banking Stocks
    ₹1,053.6-0.5%
    ₹1,440.70.52%
    ₹1,0841.08%
    ₹122.751.3%
    ₹734.052.53%
    Switch to the Mint app for fast and personalized news - Get App