The Central bank of India is constantly trying to amend and draft policies to curb the uncertainties occurring nowadays. In recent times, the Reserve Bank of India was always in news for various reasons.
The RBI’s Monetary Policy Committee is at the end of four-year term are scrutinized for the decisions they have made regarding the inflation of India over past four years with their target regime and the real performance in action. Our former governor and a deputy governor have already released their books blaming the government and the main problems India’s financial sector is fronting.
The RBI announced a one-time debt restructuring which enhanced the loan-to-value ratio of gold loans to 90 per cent after the price of gold has reached new heights. Finally, an important decision has been made by shutting the doors on India’s corporate houses who wanted to set up banks who pointed to governance challenges.
The Reserve bank of India wanted the right to examine the financial stability of corporate sponsors on an ongoing basis which has become a reason to effectively shut the door of opportunities for corporates to set up of banks. If we have to go back and check, in 1969 when banks were nationalized private sector banks had a very poor record on credit disbursement and governance. They were serving as financial vehicles for corporate houses which promoted them. People still remember how a huge proportion of credit was given to a favoured borrower by Punjab and Maharashtra Cooperative bank.
Yes Bank has to be saved as well. The reasons for the failures may be due to the limited capital and limitless ambition of the founders. It is unimaginable that the reputable corporate houses like Reliance, Birlas, Tatas, Mahindra, Bajaj and Murugappa would risk their goodwill and reputation considering the enormous size of their other investments.
It is not a secret that the policy decisions always involve in the trade-offs. India is remaining weak in the credit diffusion and we are not asking that to be very high just like how it is in certain advanced countries like China because even that can create problems in the economy. The point is to showcase that India has a low ratio of Credit to Gross Domestic Product.
The second thing is that government-owned banks have been rising much faster than their assets and profits. Public Sector Banks had downward returns on equity and assets in 2017-18 and 2018-19. To be precise, one of the reasons for the failure of demonetization to excavate the unaccounted wealth was the relationship between banks and the clients. It is evident and we know that the financial sector can’t be a free for all zone of activity and regulatory policies should aid the growth of sectors and must ensure stability.
