Dinesh Kamath's Editorial 'Interests of depositors should be protected' that was published in Newsband

Interests of depositors should be protected

India’s 21 public sector banks might get Rs 1 lakh crore by March from the Centre. The RBI deploys the PCA to monitor the operation of weaker banks more closely to encourage them to conserve capital and avoid risks. This capital offers a fresh lease of life as it will help meet regulatory requirements

State Bank of India, the country’s largest, and the nine others that are out of the RBI’s PCA net will receive nearly ₹36,000 crore in order to strengthen their lending capacity. The government’s assertion that no public sector bank will fail and that depositors’ money will remain safe should allay customers’ worry about the safety of their savings under the proposed Financial Resolution and Deposit Insurance legislation. RBI Governor Urjit Patel had described as providing a real chance to meet the banking sector’s challenges for the first time in a decade.

This infusion capital should have been provided to the banks based on some specific criteria so that, these banks would be extra cautious when lending out loans. At least, there should be a clause that they won’t be able to avail these infusions in case they aren't able to recover these NPA's.

Structural reforms will yield results only if banks are given autonomy to deal with big defaulters. The policy of recapitalisation may only have partial effect unless NPAs are recovered soon. Anyway, let's hope that this infusion in bank will lead to positive reforms.

Increasing the capital of Public Sector banks is a prudent measure. But the means to achieve this laudable goal should not turn sour. Capitalization must not prove to be decapitation of small investors' aspirations. The trust deficit in policies the present government adopt is vindicated by the propensity of the present government towards privatization. Allotment of the first capital dose to the ICICI bank betrays this intention. Retirees and geriatrics manage to get a trickle of sustenance through their humble investment in the banks. Their interests should be protected.