Should RBI Advocate For Lending Curbs On Banks?
Should RBI Advocate For Lending Curbs On Banks?
The PSU units including United Bank Of India, UCO Bank, Central Bank of India and many others have a bad loan book with stressed loans falling in the range of 18-20%. The Reserve Bank of India didn’t make any changes in the lending rates in its December monetary policy, but is considering putting curbs on banks with high proportion of stressed assets. Do you think it will be a rational decision?
Yes
• Before the bank even think of giving more loans to the customers, it is important for them to clean up their existing balance sheet.
• India is facing the problem of corruption in every department, and banking system is no exception. The tighter norms will keep a check on corrupt practices in the banking system.
• The banks need to make efforts to distinguish between good and bad borrowers. Lending blindly will bring no good to banks and the economy.
• The economy works on the quality of financial institutions and at this point India needs banks that are well capitalized.
• The ultimate aim of any institution is making profits. How are banks going to survive if the stressed loans remain at higher side?
No
• The global demand is already weakening and any such measures at this moment will be negative for the banking sector.
• Lending curbs will come as a shock to the people who are looking to start their business. It will indirectly have a negative impact on economy.
• It will take away liquidity from the system and again excess liquidity or lack of liquidity, both are negative for economy.
• The RBI should not decide on lending curbs based on the quality of assets; instead it should take a decision that should be more market-based.
• Lending curbs will be a threat to PSUs as they will stay behind from the private banks and can lose more business to them.
Conclusion
The bankers fear curbing lends will hurt the industry and leave prospective borrowers in the cold. At a time when private banks are looking to increase their loan business, the curbing lends will push PSUs to the sidelines. They can lose out on the big loans coming from the industry. And at the same time, the banks who lend recklessly are at risk of adding bad debt in their books. As of now, it is wise not to introduce lending curbs as it will pose more completion for PSUs ultimately affecting their overall performance.
Discussion
- RE: Should RBI Advocate For Lending Curbs On Banks? -Deepa Kaushik (12/03/14)
- It would be good decision to advocate lending curbs on banks. Not only the PSUs we need similar norms that could keep the private banks on track as well. People had been existing even when the loans were a difficult issue. But, there was a trust factor prevailing in that era, which explained that both the borrower and the one lending are keeping to their terms and conditions.
The era now has turned to be of an aggressive marketing. Here people have forgotten everything in order to cover their targets. Every person sees other as a guinea pig and experiments his sales tactics on the other. Such aggressiveness overlooks the capabilities of the borrower, as to whether they can repay the amount they are lending. The lending bands even forget to check the genuinity and credit record of the customers. This is one of the major reasons that the banks slip down on their track during the collection of debts and fall into the pits of downsurge.
There are other countries in the world where the citizens need to maintain a good credit rating in order to live a decent living. The credit rating plays an important factor in every purchase for them. India also has the system of credit rating for its citizens, but units prevailing over here hardly find any relevance or importance of the same. Many people might be unaware of the details regarding their own credit rating. If we can follow the trend to keep a track on the credit rating, it can definitely help in assessing the genuinity of the customers and their capacities for the repayment of the borrowed amount.
Since we cannot have all the alterations done at the same time, it is a good start to advocate the lending curbs from PSUs initially. It would be much better if the same could be somehow extended to the private banks which definitely requires some limitations in their marketing and collection approach.
