Friends, In continuation of my earlier post for mounting NPA, I wish to share my views in regard to various factors. Here is the second major factor i.e. Sudden Jump in Economy:
Post liberalization, the economy
started vibrating tremendously and this led to freeing various sectors of the
Economy particularly Finance , Infrastructure and Industry. Without sufficient
Funds, it was not possible to move forward. Funds started flowing from overseas
markets, Share Markets witnessed sharp increase in volumes and every penny
brought in as Equity was used to raise debt more than 3 times. This made the
debt market blast like anything. Now this led to the sharp increase in lending
business . Infrastructure development, Industrialisation, Power, Mining, healthcare, hospitality all
segments were like hungry demons out to suck the money . The cascading effect
was on equity market which boomed like anything and this resulted into more and
more need of debt money to the system. Infact it was like a vibrating ring
effecting each other to vibrate further.
With new liberalized environment, political parties started
demanding more and more growth. They started taking more and more interest in GDP growth, IIP
numbers and Sensex. This probably also ignited the level of corruption in all
segments.
We witnessed a decade with highest investment in infrastructure like
Port, Power, Road, Buildings, Bridges between 1998 to 2008. This also made our
country manufacturing hub and put the country ahead of many countries in Many
industrial segments. Obviously, it was not without any flaws, it took away lot
of capital from the system.
Probably, the respective governments were quite confident about the
capability of Indian banks to handle this sudden spurt in demand of money.
Though governments and institutions were delivering their best, but the good
time was not alone, it brought higher level of corruption, high expectations,
chaos in the system and mis-management . In the process, politicians took over
the reigns of finance and started over ruling the bankers. The situation in
banking system was already on fire due to severe competition, this tendency of
forcing the bankers to lend more and more further worsened the situation. Even appointments were not free from
any allegations. The pressure of performance with in limited time frame caused
the deterioration in quality.
To sum up, Both factors i.e. Growth in banking sector and Economic
growth resulted into very high defaults at later date.
Other factors responsible
for current level of NPA needs detailed analysis before pumping money into
banking system continuously. This is public’s hard earned money and should be
used judiciously. Lending institutions should not be allowed to remain
corruption breeding stations forever.
CP
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