oppn parties The Banking System: Money, Money Everywhere, But Not A Penny To Lend

News Snippets

  • Calcutta HC said that an accused in a NDPS case is not entitled to default bail if a charge sheet, even without the chemical report, is filed within time
  • 21 killed in a hooch tragedy in Amritsar. Police arrested 10 persons
  • Incoming CJI Justice B R Gavai said that he will always strive for social and political justice
  • Although US Prez Donald trump once again claimed his administration brokered the ceasefire between India and Pakistan, India clearly refuted the claim and said it was workd out by the DGMO
  • Centre tells the Supreme Court that since women are not in combat roles, there has to be a separate selection board for them
  • India briefs 70 nations on Operation Sindoor
  • PM Modi asks Pakistan to vacate illegally-occupied portions of Kashmir
  • PM Modi tells Pakistan that it faces annihilation if it does not stop supporting terror
  • PM Modi visits Adampur IAF base, poses before the S-400 surface-to-air defence system to destrot Pakistan's claim that it had bombed the base and destroyed the defence system
  • 5 US companies make offers to GAIL for stake in LNG projects
  • Retail inflation dipped to 3.2% in April, the lowest since July 2019
  • Stocks tumble on Tuesday: After the all-time single-day gain on Monday, stocks lost heavily on Tuesday - Sensex went down by 1281 points to 81148 and Nifty lost 346 points to 24578
  • Indian tour to England: A new look Indian team with a new skipper will be announced when the selectors meet later this week in view of the retirement of Virat Kohli, Rohit Sharma and R Ashwin
  • IPL: Most overseas players to return and teams likely to be full strength
  • Sharad Pawar calls for an all-party meet to discuss Operation Sindoor, says such matter cannot be publicly discussed in Parliament as the Congress had earlier demanded
PM Modi warns Pakistan - stop supporting terror or face annihilation /////// Also asks Pakistan to vacate illegally-occupied portion of Kashmir
oppn parties
The Banking System: Money, Money Everywhere, But Not A Penny To Lend

By Ashwini Agarwal
First publised on 2020-09-03 13:53:17

Two things are absolutely clear: the banking system is flush with funds and either there is no demand for credit or the banks are unwilling to lend. The figures say it all. Bank deposits have increased by 11 percent YoY till the middle of August to over Rs 14 lakh crore while credit has gone up by only 5.5 percent to Rs 5.35 lakh crore. This is one side of the story. On the other side, it is seen that banks have invested Rs 7.55 lakh crore (a jump of 21.2 percent) in government securities and are parking over Rs 6 lakh crore daily in the RBIs reverse repo window which yields a paltry 3.5 percent annual interest. This clearly shows that there is no dearth of money and banks are investing them in low, yield but safe avenues. This could be due to two reasons: either there are no borrowers or the banks find it risky to lend to the ones who are approaching them.

One thinks that it is a combination of both. The pipeline of big projects, shrinking even before the lockdown due to the downtrend in the economy, has almost dried up. In the absence of demand, entrepreneurs are not interested to invest in expanding capacity or set up new units. With the government not investing in infrastructure, the demand for downstream units is also not materializing. Local MSME businesses, although buoyed by the government's Covid package, find that bankers are unwilling to lend to them just on the strength of the lockdown-induced distress. Of the few projects that do come, banks are either not convinced of the viability of the projects or the credentials of the promoters. Hence they are parking their money in government securities or with the RBI. Although the RBI governor has chided them for their risk-aversion, it is not right to put all the blame at the doors of bankers. The system suffers from many well-known anomalies and the government and the RBI must address them without further delay. The bankers would take risks if they are not criminally prosecuted for taking decisions in the normal course of duty. Other systemic and structural glitches must also be removed.