OPINION: Short coming makes the banks vulnerable to government interference at various levels

INDIA’S ECONOMY is in great distress with bleak chances of immediate improvement.  Fiscal deficit and current account deficit are at a quite worrying level.  Small and Medium sector of industry has been playing a very useful role in boosting the economy in all respects.  Banks have a very crucial role in propping industry. Unfortunately small and medium sector of industry has been at the receiving end as far as banking is concerned.  On the other hand, large business houses make the banks play in their hands.  Examples are aplenty before the public which show glaring misuse of banks by them in impunity.  On the other hand, smaller entities are subjected to harsh treatment by the banks.

The concept of priority sector is totally distorted by making a complete mess of it.  There is no defined mandatory share of credit in the priority sector for MSME units.  This sector is being charged the highest rate of interest and heavy processing charges are levied on all transactions.

Government of India is encouraging a new trend in the country to give licenses of opening banks to business conglomerates.  This is quite a worrying some move especially to the small and medium sectors.  The Head of the Prime Minister’s Economic Advisory Council, C. Ranga Rajan has even urged RBI to start by issuing licenses to non-corporate business.  First look elsewhere only if there are no such qualified applicants.  Both left and right leaning economists are strongly against issuing banking licenses to companies.  It was not allowed in the U.S. with the reason that the conflicts of interests destroy the economy.    The regulators would not be able to circumscribe them easily.  Similarly the right wing economists hold the view that if industrial houses are allowed to run banks there will be a massive scope for malfeasance.  It is interesting to note that Japan is one country where banks and industries are enmeshed each other and as a result it has not been able to emerge from a two decade old financial crisis.

Unfortunately, in our country RBI is not legally independent.  This short coming makes the banks vulnerable to government interference at various levels.  It is an open fact now in the public domain that big business houses are hand in glove with the government.  The extent of accounting frauds can be judged from the Satyam case.  Glaringly misused bank credit by private airlines is well known.  This list of misuse is long.

With the big business houses entering in the banking sector the common man will also suffer.  Banking is not like any other sector.  The conflicts of interest have the potential to destabilise the entire economy and eventually cost the tax payers very heavily.  We need banks which are world-sized and world-class as has been recommended by prominent committees on banking.  It is high time that government should pay due attention to the core sectors of the economy at the small and medium level to get a boost in the economy.

(The Author is Ludhiana-based industrialist and president of Apex Chamber of Commerce and Industry, Punjab.)

(Disclaimer: The views expressed by the author in this article are his own and do not necessarily reflect the views of City Air News.)