Weak banks

More light needs to be shed on the credit bubble inflated over the past decade under political pressure from the finance ministry


Photo: Mint
Photo: Mint

It is time to ask a tough question. How did bank boards, chief executive officers, regulators, auditors and rating agencies not understand well before now that there is an unholy mess on the loan books of Indian banks? Or did they know and remain silent? And more light needs to be shed on the credit bubble inflated over the past decade under political pressure from the finance ministry.

The latest batch of quarterly bank results—Punjab National Bank being the most dramatic example—shows how much damage has been caused by this conspiracy of silence. The sheer pace at which skeletons are tumbling out of bank closets these days suggests that the taxpayer will soon be presented with the bill for cleaning the mess. That is why it is important to understand what went wrong. The fear that there may be a witch-hunt against bankers—a genuine fear—should not prevent an honest appraisal of what now seems to be a deep systemic failure.

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