9 recapitalisation of banks by the government is a

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9. Recapitalisation of banks by the government is a bold move but has been delayed. What are the impacts of this delay? Do you think that privatization of Publics sector banks is the only solution to this problem? The government has realised that there is a problem with the supply of credit. It has to do with PSBs’ inability to lend for want of adequate capital. The government should have recognised the problem in May 2014. At the time, stressed advances were already 10% of the total. The government should have moved swiftly to recapitalise PSBs. The failure to quickly recapitalise PSBs has adversely impacted the economy in many ways. First, it has come in the way of adequate supply of credit. Second, it has hindered the effective resolution of the NPA problem and kept major projects from going through to completion. Resolution requires banks to write-off a portion of their loans in order to render projects viable. They cannot do so if they see that write-offs will cause their capital to fall below the regulatory minimum. Third, corporates are stuck with high levels of debt and are unable to make fresh investments Analysts also fret over repeated bailouts of PSBs and the costs to the exchequer. They seem to think that bank bailouts have to do with government ownership and inefficiency and the answer is to privatise some of our PSBs. They couldn’t be more wrong. The overwhelming majority of bank systems worldwide are privately owned. And yet these systems are prone to periodic bouts of bank failures. The International Monetary Fund has documented 140 episodes of banking crises in 115 economies in the world in the period 1970-2011. The median cost of bank recapitalisation in these crises was 6.8% of GDP. India’s cost of recapitalisation over a 20-year period is less than 1% of the average GDP during this period. 10. What can be the various steps taken to increase job growth in India so that it matches rate of industrial growth as projected by Index of Industrial Production? Following are the steps that policy-makers may take revive job growth, other than invest more in infrastructure, which this government has been attempting to do especially for last 18 months or so, in both rural and urban India- 1. An industrial and trade policy is needed. The Department of Industrial Policy and Promotion (DIPP) is finally preparing an industrial policy. While the DIPP is preparing the industrial
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11 | Page 9004418746 [email protected] policy document, it is essential that trade policy is consistent with such an industrial policy. Otherwise the two may work at cross purposes and undermine each other’s objectives.
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