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#4: Hands-on or Hands-off?
The "system" i.e. the government, RBI and judiciary, are a confused lot when it comes to safeguarding lending. And in their dealings with banks during the pandemic.
Consider this. The country goes under the world’s most stringent lock-down at a moment’s notice.
The government (or RBI. Both are synonyms these days) follows that up by announcing its most significant and may I add sole support of consequence for the “institutional economy type”…tons of liquidity for the banking system through the Reserve Bank (read TLTRO).
Translation (from the government’s point of view):
There ain’t no free lunch so there won’t be direct payouts.
Rather we’ll ensure the banking sector gets all the help it needs. It is up to them as “credit specialists” to give money i.e. find and lend to those who are deemed the most in need, be it corporations, SMEs, or the common man.
The Indian government will prefer to stay hands-off.
This was surely a far cry from the Fed’s approach who did not bother to go through US banks, instead preferring to directly inject liquidity - where needed. Hands-on.
But wait. The same Indian government/RBI later recommends (nay, enforces) a moratorium to grant time to distressed borrowers…
What started as a three month window (till 31st May) was later extended to six months (31st Aug), and now to September 28th, this time thanks to the Supreme Court.
Slow walk towards hands-on?
Yes, the Supreme Court is reviewing terms of moratorium enforced by the government on the banking sector now…suggesting waiver of accrued interest, and directing them on what can be classified as an NPA and what cannot until further notice.
The government levels up further: starts contesting the SC’s waiver, also says that the moratorium may be ‘extendable’ by up to two years.
Moreover, it sets up the Kamath committee for creating a “framework” through which distressed borrowers may be qualified as eligible or not for potential restructuring.
Meanwhile the bandwagon for “lend more!” keeps doing the rounds of every Finance Ministry presentation, press conference, or tweet.
Anyone caring to ask the credit specialists (i.e. the banking sector) who are giving out the loans in the first place regarding what they want?!
Doesn’t seem like.
Consumer interest, silly!
So let me summarise. We started with being hands-off, then went hands-on ON steroids thanks to the good old consumer interest redux.
The hypocrisy is evident. If the inclination was to keep consumer (or citizens, for dramatic effect) interest at the forefront, the Central Bank should have taken a page from the Fed’s playbook, going for direct and decisive credit intervention where it had the right to control the borrowers’ terms of engagement. Why keep throwing banks under the bus?
Also let’s not forget.
Consumer interest may make good politics, but it rarely makes for good credit.
Part of WhatsApp Arkives, an on-and-off curation of interesting snippets and “takes” churning on my phone.
(cataloged as “#” followed by a reference number “x”)