Nobel laureate Abhijit Banerjee on Wednesday said the Indian banking sector is facing a huge, deep-rooted crisis that requires immediate attention
Kolkata: Nobel laureate
Abhijit Banerjee on Wednesday said the Indian banking sector is facing a huge,
deep-rooted crisis that requires immediate attention.
Speaking
in context of scam-hit PMC Bank and the emerging problems in the banking
sector, Banerjee, who won the Nobel Prize in Economics this year along with two
others, said this problem could be used as an opportunity to sell off country’s
ailing banks.
“The banking system is facing a huge problem
at present. I think it’s been messed up for many, many years and, as a result,
it’s a deep problem now...in the sense...it’s a lot of money that needs to be
spent and the government doesn’t have that kind of money to fix the banks. I
really think this is an opportunity to sell the banks (ailing ones),” said
Banerjee, speaking exclusively to News18 over the phone.
The Nobel
Prize winner said several banks are staring at a financial crisis and the
deeper one goes, the more problems will come out of the closet. “(It happens)
every time there is a new bank … it was alright till yesterday and then PMC
bank just goes completely belly-up. This is a pattern that has been seen for
quite some time now. So my guess is, this is a deep and broad problem. A lot of
banks are not in good shape and the total amount needed to bail them out will
be huge.”
“I think
the right thing to do is to use this opportunity to sell the banks and raise
some money and induce that money to bail out the banks,” he said.
“Hopefully,
these (ailing) banks still have a branch network and some good people, so they
will be saleable. If they are saleable, sell them before you discover more
problems. Let somebody else deal with them because the government does not have
the bandwidth to do that,” added Banerjee,who won the coveted prize on October
14 along with his wife Esther Duflo and Michael Kremer for their experimental
approach to alleviating global poverty.
As per a
recent information furnished under the Right to Information (RTI) Act, State
Bank of India (SBI), India’s largest bank, wrote off bad loans worth Rs 76,600
crore of 220 defaulters who owed more than Rs 100 crore each.
Calling
the development a mere “tip of the iceberg”, Banerjee said such incidents are
bound to lead to mistrust among the people.
“Yes, it
will create a mistrust. I don’t blame them (account holders). This is alarming.
I think it’s just the tip of the iceberg. There is more. I mean just the
pattern seems to be very revealing. No one is saying anything. The RBI is not
very vigilant in giving warning to these banks and suddenly we find this
crisis,” he said.
Reiterating
that the government should use the opportunity to privatise the ailing banks,
he said, “These banks (ailing one) are overstaffed, have bad returns, made a
lot of bad judgments and the business sector took them for a ride for years.
The government should use the opportunity to
News 18
had earlier reported that in the last three years, the Indian banking system
has lost Rs 1.76 lakh crore on account of non-performing loans of 416
defaulters — each owing Rs 100 crore or more — being written off. On an
average, the amount declared as bad loans turns out to be around Rs 424 crore
per borrower.
A total of
Rs 2.75 lakh crore has been written off for entities that borrowed Rs 100 crore
or more from scheduled commercial banks. The latest statistics divulge that Rs
67,600 crore was declared as bad debts for loans of Rs 500 crore and more.
As many as
980 borrowers have been enlisted by the RBI whose debts of more than Rs 100
crore each had to be written off by banks. Of these, 220 accounts – more than
one-fifth of the total number – belonged to the SBI. An average of Rs 348 crore
was waived off in respect of each such account.
In the
last one week, three account holders with the PMC Bank have died after the bank
was put under restrictions by the RBI following the discovery of a Rs 4,355
crore scam. Deposit withdrawals have been capped at Rs 40,000 over a six-month
period, causing panic and distress among depositors.
Real
estate firm HDIL allegedly accounted for 70 per cent of the bank's Rs 9,000
crore advances. According to the Mumbai Police's Economic Offences Wing, HDIL's
loans turned Non-Performing Assets, but the bank management hid this from the
RBI's scrutiny.