RBI has failed in effectively regulating the banking system.
What are the burdens of Indian banking?
Sub-Prime Infrastructure thatled to potential loss of Rs 6 lakh crore for the banks.
Limited recourse lending - These are the loans of several lakh crores of rupees that were given for power and highway projects.
Banks do not have recourse to any collateral security and rely primarily on anticipated project revenues.
Discom issues - PSBs have been continuously lending to near-bankrupt Discoms in order to fund their ballooning losses
UDAY scheme transferred the unrecoverable loans of discoms to the respective state governments who will use taxpayers’ money for repayment over the next decade.
What are problems with RBI?
RBI failed to detect the financial backlogs in time, and failed to contain the internal crisis of gigantic proportions.
It is one single institution, which is held responsible for the despicable state of India’s banking sector, its statutory capabilities are failed in dealing the large sector.
RBI failed to adopt the prudent practices associated with limited recourse lending.
The regulatory inspections of RBI failed to flag large-scale malfeasance that was certain to result in bad debts.
What are the outcomes the failures?
The taxpayer will pay over Rs 3 lakh crore in the form of government bailouts or other indirect support to meet the losses of banks on account of such irresponsible lending to projects.
An equal amount would also be borne by taxpayers to cover the bank loans to Discoms across the country.
The resultant losses cannot be recovered from consumers for political and economic reasons.
In the absence of a vigilant regulator, banks went wayward and lost heavily.
Banks have moved away from investment lending, which in turn has stunted the growth of incomes and employment.
