Civil Service Bytes

It is now clear that the markets were right. They never believed the PSB numbers and thus refused to recapitalise them. Ultimately, the RBI had to force the banks to come clean. Having been lied to for years, it is but natural that investors don’t believe the government’s contention that after fully recognising all asset impairments no significant bank will breach its minimum core capital requirement. Nobody believes that the capital the government has already committed to the PSBs will be enough to get them through the Basel changes, recognise their asset impairments and fulfill their growth needs. If the authorities are so confident of their numbers they should disclose their assumptions. What is the true extent of asset impairment, and based on what stress assumptions? How much is this hidden capital, property etc that the banks have? What are they assuming for loss given default? How much of the restructured and SDR book are they assuming goes bad? What are the commodity price ...

The reasons for the banking mess are well known. What India is now battling is the inevitable result of a credit binge sponsored by the previous government. Bankers too misread the growth trajectory of the Indian economy after the quick recovery from the effects of the North Atlantic financial crisis. Individual projects got stuck in the regulatory morass during the last years of the second Manmohan Singh government. It is now time to move beyond the game of pinning blame. There is a more immediate concern: what should be done? The first task should be to throw more light on the extent of the problem. Reserve Bank of India (RBI) governor Raghuram Rajan deserves credit for pushing banks to reveal the true state of their loan books. These asset quality reviews come just a few months after regulatory changes that push the promoters of defaulting companies to either bring in fresh equity or lose control of their enterprises. Recent bad loan disclosures by banks have lent credence to t...