Page 45 - BANKING FINANCE NOVEMBER 2023

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be to ignore this important issue and hope that the structural
cracks caused by such syphoning off of public funds would
eventually close. If the issue is not addressed now, the public
sector banks may eventually have to deal with even worse
wilful defaults.

As it is well proven fact that lending criteria continue to be
the most important component of the lenders' businesses.
Since the banking system's asset quality has greatly improved
over the past several years, it is crucial to maintain the
stability of the banking industry. Banks must closely monitor
loan accounts in this situation and inform all parties of the
full picture. Shri. Shaktikanta Das, Governor -Reserve Bank
of India, has recently made a point that the regulator has
department to conduct the necessary investigation into the
discovered creative techniques that banks are using to hide
moral and ethical character of businesses. But who is to say
stress. Additionally, new approaches to ever-greening are
that, despite their expertise, these bankers wouldn't be
allegedly being used by banks. Lenders must take use of all
duped by even more astute borrowers or, worse, wouldn't
act favourably or prejudicially? There may be another available options to recover as much money as they can from
non-performing accounts.
strategy that may involve academician and decision-makers
to develop a methodology that is as impartial, methodical,
A thriving economy depends on a robust banking industry.
and comprehensive as possible while acknowledging that it
Making sure that the banking system recognises financial
won't be perfect.
distress early and responds quickly is necessary because its
The methodology may change over time, but to ignore the failure could negatively affect other sectors.
issue because it is challenging to address both theoretically
and empirically is to act as though it doesn't exist. There The intention of the Reserve Bank of India on the recent
are other suggestive ways like Banks must make use of move cannot be questioned as being the Banking regulator
transaction information made available through payment of a capital deficit country, the primary aim of the RBI is to
methods and work with numerous law enforcement ease the availability of capital for the purpose of investment
organisations, including Income Tax department, Revenue and employment generation. However, one cannot deny the
Intelligence, Central Economic Intelligence Bureau, harmful effect of the move that could jeopardise the stability
Enforcement Directorate (ED) and Special Fraud of the banking system. The RBI decision could be harmful
Investigation Office (SFIO). to the banking sector and depositors, since defaulters and
fraudsters are being excused for their wrongdoings, which
These organisations are tasked with looking into corporate will fall disproportionately on ordinary people, especially
financial irregularities such as money laundering, tax and depositors.
duty evasions, and other shady financial activities.
Information on these acts can be efficiently used by banks It promotes dishonest borrowers while also sending an
to cut down on loan defaults. The need of the hour is to unpleasant message to honourable borrowers who try to
have improvisation in the mechanism of sharing information fulfil their financial responsibilities. The RBI's recent move
among lenders, which can improve lending and lower default may be viewed as a negative move that could destabilize
rates by reducing moral hazard and adverse selection. financial sector and undercut efforts to effectively deal with
wilful defaulters. Reserve Bank seems to be in a dilemma
Since this issue is likely to persist in some way unless banks over growth and financial ethics and trade-off among these
and regulators figure out a way to eliminate such wilful is going to leave a widespread footprint on financial system
defaulters. Procrastination, or at best wishful thinking, would of India. T

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