Topic Of The Day:-“More reforms needed”
In the light of this background, the decision to inject ₹2.11 lakh crore of capital into public sector banks is a welcome boost. This was also evident from the reaction of the stock market as some bank stocks soared by as much as 35%. It is somewhat a moot point that this injection could have been done at least one year ago. The injection is clever because it has been done without busting the promised fiscal deficit target. It has been financed by the sale of recapitalisation bonds. Banks are currently flush with cash which was deposited after demonetisation. Much of that same cash will be used to buy those bonds. The proceeds of the sale of these bonds will be put back into the bank as fresh equity by the government. It’s a neat roundtrip of depositors’ cash coming back as capital. To that extent it is taxpayers who are funding this equity injection. More details are awaited. For instance, since banks are listed entities, should not other shareholders apart from the government also be asked to make a matching equity infusion? What about the windfall gains that arose as a result of this equity infusion? How will the bonds be repaid by the government? What will be their duration? Will they be traded? Would they instead be converted into perpetual bonds, never to be repaid, as was done to the 1992-93 bonds? Suffice to say that this capital infusion provides banks with the much-needed room to make fresh loans. In the coming days of Basel-3 where much capital is needed for risk provisioning, the NPAs are a millstone which prevent fresh lending. With this big bang recap effort, we can expect the growth pipes to be unclogged. Of course, the recapitalisation effort is useless without accompanying reforms which can prevent a recurrence. Those reforms are mostly about governance, meaning granting genuine autonomy to banks in their functioning, including all aspects such as lending, recovery, and recruitment decisions. Banks have to be accountable to shareholders, including the government, through their respective boards. That’s the fourth crucial “R” that was part of this recap package – recognition, recapitalisation, resolution and reform. Without reform of credit functioning, culture, treatment of delinquencies and even ownership structure in banking, this recap effort will only be stopgap. Assuming reform is coming (witness the huge increase in India’s global rank in ease of doing business), let’s raise a toast to the bank recap.
MEANINGS AND WORDS
1) Soared
Meaning: Fly or rise high in the air.
Example: The bird spread its wings and soared into the air.
Synonyms: Wing, Ascend
Antonyms: Plummet
2) Roundtrip
Meaning: A journey to one or more places and back again, especially by a route that does not cover the same ground twice.
Example: The next week, after I had returned the car, I was presented with the data of my weekend’s journeys, which included one 60 mile round trip to Mornington.
3) Perpetual
Meaning: Never ending or changing.
Example: Deep caves in perpetual darkness.
Synonyms: Everlasting, Eternal
Antonyms: Transitory, Temporary
4) Autonomy
Meaning: Freedom from external control or influence; independence.
Example: The courts enjoy a considerable degree of autonomy.
Synonyms: Self-government, Sovereignty
5) Reform
Meaning: Make changes in (something, especially an institution or practice) in order to improve it.
Example: The Bill will reform the tax system.
Synonyms: Improve, Better
Antonyms: Preserve, Maintain
6) Delinquencies
Meaning: Minor crime, especially that committed by young people.
Example: Social causes of crime and delinquency.
Synonyms: Crime, Lawlessness
7) Stopgap
Meaning: A temporary way of dealing with a problem or satisfying a need.
Example: Transplants are only a stopgap until more sophisticated alternatives can work.
Synonyms: Improvisation, Expedient
Antonyms: Permanent
8) Toast
Meaning: A person or thing that is very popular or held in high regard by a particular group of people.
Example: He found himself the toast of the baseball world.
Synonyms: Favourite, Pet
