Lending by public sector banks — particularly to the infrastructure sector — has practically come to a standstill in recent times. The reason is not far to seek. Many of the projects for which they had earlier handed out credit are now non-performing loans. The situation has been exacerbated by recent comments by the director of the Central Bureau of Investigation (CBI) to the effect that the agency will investigate all transactions relating to a corporate group where one of the entities has turned defaulter.

Such utterances have, not surprisingly, sparked panic among bank staff. The result has been a virtual halt in sanctions, with no officer willing to move a proposal inside a bank for fear of possible future trouble. Statements like “PSBs waste public funds” have not exactly encouraged banks to lend either.

The problem has been worsened by the fact that with the economy in a slowdown, banks were anyway hard pressed to find avenues to lend to bona fide borrowers. Credit growth, which had increased from a 20-year low last year to around 11 per cent as of February this year, may not be sustainable due to rising NPAs, brokerage house Nomura had warned last week.

It would need more than the recent reassurances of RBI governor Raghuram Rajan and finance minister Arun Jaitley to bring back confidence among bankers to do their karma. What is heartening amidst this is the way policymakers at the highest level have in recent days reacted to the recent outcry over the Vijay Mallya episode. Both Rajan and Jaitley have emphasised the need for balance, and not overstating the crisis.

One can’t agree more with Rajan when he says that fishing expeditions (from investigation agencies) should not become the reason for loan paralysis. This will end up halting the huge infrastructure push that is waiting to happen.

Deputy Editor

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