Is Chekhov’s missing gun to blame?
Former RBI governor Urjit Patel’s upcoming book seems to pin the bad loan pile-up of our banks on a failure of regulatory deterrence. This may be so, but perhaps the sector’s crisis can’t be resolved without structural reforms
Dribs and drabs out of Urjit Patel’s forthcoming book, titled Overdraft: Saving the Indian Saver, have begun to surface in the media. The former governor of the Reserve Bank of India—who oversaw demonetization in late 2016 and quit a couple of years later—has already created a buzz with a literary analogy he seems to have drawn in his book between Indian bank supervision and “Chekhov’s gun". The reference can be traced to the Russian playwright Anton Chekhov’s play, The Seagull, in which a rifle seen with the lead character at the start is also the instrument by which he kills himself in the end. In literature circles, though, the term serves as a “rule" by which nothing should appear in a story that has no role in the plot as it unfolds. Everything needs to have significance.
Patel’s book is about our banking sector’s massive pile-up of bad loans, a chunk of which may be traceable to wilful defaults. Many of these are suspected to have occurred with lenders in collusion with borrowers and other officials, letting the latter sneak away with bank money they never intended to repay. In Patel’s telling, it seems, such pelf has been the result of no penalties being feared by anyone. The “gun" of regulation that’s supposed to act as a deterrent, in his view, has simply failed its purpose. Sample this line from the book, as published by The Indian Express: “In the regulatory, enforcement and legal landscape around loan recoveries in India, the unused rifle usually disappears by Act Three, hence it is not credible since all stakeholders know about the preordained vanishing act."
It’s an interesting analogy, though it’s unclear whether tighter supervision is the answer to our crisis of dud loans. The sector has been left unreformed for far too long. Perhaps it’s time for state-run banks to be privatized. If not, let’s at least keep their ownership apart from their management.
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