Bad Banks & Reviving The Economy

The Indian banking system is headed towards one of the toughest decades ahead with the slow economic recovery in the post-Covid world, and higher than ever uncertainty, the government lending to private corporations aggressively brings back the question which is how will we as a people manage the economy now.

The government has very less options on the table since they are spending more, but are not spending the money on welfare policies, the banks will have to lend their money rather than sit on the cash. Since PMC and merger of banks has happened and many banks will fail over time, and non-banking corporations will come under stress eventually, the government will have to look for creating one replica of the Grant Street National Bank in India too.

Lending too much of money and pushing the economy in situtations of crisis was done even in the 2008 when Mr. P. Chidambaram was the finance minister. Today the COVID has imposed a similar situation which promises that the non-performing assets will increase in this decade since many old businesses and small businesses will come under stress that will not last longer given the transition to the new emerging trends in the world of business, and all thanks to the COVID-19.

Now, Mr. Shantikanta Das recently proposed setting up of a bad bank if the industry experts feel it is required, but taking cues from the Sunil Mehta Panel, the government must create a bad bank at the earliest and all the bad assets before the COVID lockdown happened must be handed over to the bad bank.

The banks must also develop mechanisms to create more balanced risk assessment and careful lending so that we stop generating bad loans. The idea of a bad bank is good since we are left with no option than to lend money to the people to continue their operations. In the due course of time, the bad bank and the economy will see credit discipline since inflation is raising the cost of living and incomes are not rising.

Simply, a bad bank must be established immediately but the Opposition must not be left out, since the Opposition of the day may be in power someday, then they will have to manage the economy with the same vision.