Control over banks
This refers to ‘Why should government own central banks?’ (May 15). The difference in the control structure of commercial banks in advanced economies (AEs) and emerging economies (EMs) provides the answer. In the case of AEs, commercial banks mostly operate in private space with the ownership structure predominantly vested with shareholders. In contrast, control exercised over banks in EMs like India are varied in nature with pubic sector banks totally under the control of the government who have a major influence on monetary policies framed by central banks.
The structure of central banks in terms of ownership differ in AEs . The US Fed enjoys operational freedom, and Bank of England is government owned. But commercial banks in both these countries being private entities, the issue of “conflict of interest” between central banks and commercial banks in policy formation is greatly mitigated. In India, with the government owning PSBs and the RBI under the control of the government, the RBI is forced to play second fiddle to the government.
Good for democracy
This refers to ‘Handsome win’ (May 15). The Congress’s victory in Karnataka elections is critical from the perspective of the health of democracy, as a strong opposition is a must for a vibrant democracy. The Karnataka win must act as a tonic to the Congress and rejuvenate its leaders and grassroots workers.
For the BJP, it must learn that the Prime Minister alone cannot always win elections for the party. It has to nurture strong regional leaders which are in short supply at present. Most State elections are won on local issues and there is no point playing divisive politics or bringing national agenda in State elections as it will boomerang.
Germane issues matter
The high voter turnout and clear rural preference to the Congress in the Karnataka election reveal that the rural middle class now occupies as much space and clout as the hitherto predominant urban sector.
Whereas ideological overtones of the BJP tended to prevail over basic and existential concerns in the northern belt, the same finds much less purchase in the South. On the national canvas, the BJP had pursued, with some success, its concept of ideological unification but in its angst to push it in the South, the BJP is better educated today. And so would every party, that real and germane issues stand to score over emotive rhetoric.
Settling bad loans
This refers to ‘Urban co-op banks seek RBI nod for one-time settlement of bad loans’ (May 15). Among the recovery tools, scheduled commercial banks are effectively using one-time settlement or compromise settlement to bring down the level of bad loans. While urban co-op banks are governed by the banking regulator and the former is also required to comply with the prudential norms on income recognition, asset classification and provisioning subject to limited exposure norms.
As the UCBs are not financially strong, they must look for compromise settlements. To cleanse the balance sheet, the RBI must encourage these banks to go for one-time settlement of bad loans in terms of a specific recovery policy approved by their boards.