As if a swiftly depreciating rupee, bloating current account deficit and high inflation were not enough. The new RBI governor has much more to deal with that he must have envisaged. The latest alert is on the health of Indian banks. As per Firstpost, rating agency S&P has in a detailed report highlighted the deteriorating quality of banking entities.
Having analyzed the June quarter performance of PSU banking entities, this report is no surprise to us. In fact one can safely say that the condition of asset quality of PSU banks in particular is much worse now than it was in 2008. And the possibility of upward movement in interest rates makes the chances of further deterioration in asset quality more real. While the real culprit has been the restructured assets, the government's arm twisting policies are equally to blame. The onus of ensuring that problem of NPAs does not become a system wide malaise falls on RBI. And therefore Dr Rajan will have to ensure that the RBI takes a firm stance.
Having analyzed the June quarter performance of PSU banking entities, this report is no surprise to us. In fact one can safely say that the condition of asset quality of PSU banks in particular is much worse now than it was in 2008. And the possibility of upward movement in interest rates makes the chances of further deterioration in asset quality more real. While the real culprit has been the restructured assets, the government's arm twisting policies are equally to blame. The onus of ensuring that problem of NPAs does not become a system wide malaise falls on RBI. And therefore Dr Rajan will have to ensure that the RBI takes a firm stance.
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