Will Banking Reform help the Economy?

The government is stepping up the recapitalization policies this fiscal year, with a detailed plan for Public Sector Bank (PSB) infusions. This will ensure that almost 2.11 lakh crore is capitalized for 20 PSBs.

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These future plans come at a time when lessons have been learnt in the past about maintaining highest standards for Public Sector Banks. Rajeev Kumar, the financial secretary said

“Each public sector bank (PSB) is an article of faith. All PSBs will be adequately capitalised and enabled to serve people and support inclusive growth,” said Kumar.

The government in the current fiscal will infuse Rs. 88,139 crore in 20 PSBs, with IDBI will be getting the most at Rs 10,610 crore.

Banking reforms is finally planned, with a more ease of doing business with easier banking facilities and to sort the confusions related to banking.

Government’s plans include

  • Recapitalization BondsBonds will be of a maturity of 10 to 15 years and priced at 8 per cent.
  • Institutional Reform – To keep banks in good health
  • Approval of 80,000 crore from parliament to be infused to recapitalize banks to revive growth

However the question remains of why banks should be rescued when big players such as Vijay Mallya are running away with banks capital. Instead of using hard earned tax payer’s money for capitalizing, they should use the tax payer money for creating a better infrastructure system. Bad loans should not be considered in this regard.

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With banks FD interest down and taxations increasing, savings will reduce from the majority of people. This will lead to a disruption in the banking system.  If history is to not repeat, other plans need to be considered instead such as improving the efficiency of the banking system and not bailing out banks when in trouble due to Non performing assets (NPA).

Other methods that can help solve this issue-

  • Assets of the NPAs can be taken over and auctioned
  • Salary cuts to big managers in the bank who are mostly responsible for the NPAs
  • Not waiving off the big players debts in the banks but instead pursuing it.