Role of banks

The insight variance between the functions of public and private sector banks has been beautifully brought out in ‘The other face of private banking’ by CP Chandrasekhar and Jayati Ghosh (January 16) . The basic purpose of banking operations in India is for acceptance of deposits for the purpose of lending. This aspect has been bypassed by private banks which concentrate on nonfund-based activities.

RS Raghavan

Bengaluru

Banks are bound to turn to the most profitable business as long as profitability remains the yardstick for their assessment. Risk measurement of sophisticated derivatives is no doubt challenging. However, it is incorrect to say that there are no guidelines for regulatory capital against off-balance sheet liabilities in India; the RBI has brought traditional items like guarantee and derivatives such as CDS, forward contracts, interest rate swaps, etc, within the framework of capital adequacy under both credit risk and market risk by using conversion factors. The declining trend of off-balance sheet items after 2015 may be attributable to the tightening of norms by the RBI for it was around that time that regulatory framework was firmly put in place. The low exposure of PSBs may be due to lack of expertise.

Before passing summary judgment on the declining intermediary role of private banks a distinction needs to be made between the new and old generation banks, and a more detailed analysis of the trend of their asset growth is called for. The old-generation private sector banks continue to rely mainly on traditional intermediation and play a very useful role by undertaking considerable lending in rural and semi-urban areas.

Manohar Alembath

Kannur, Kerala

Protect the judiciary

Despite everything, the judiciary in India is still viewed with respect and offers hope to embattled litigants. Members of the judiciary should do nothing to vitiate this perception. It is unfortunate that the four Supreme Court judges chose to make their grievances public. The issues should have been discussed threadbare and a resolution arrived at internally. How does it help taking it to the media?

V Subramanian

Chennai

Hurried move

This refers to your editorial, ‘Needs resolving’ (January 16). Though the finance ministry has assured depositors that the “present protections” will continue, it is the timing of the Bill which is troubling. The December Financial Stability Report of the RBI suggests that gross NPAs may rise from 10.2 per cent in September 2017 to 11.1 per cent by September 2018. Considering the financial burden the Government may come under, it wants to resort to ‘bail-in’ which relates to “a provision cancelling a liability owed by a covered service provider”. This is a move made in a hurry.

The Government need to clearly specify the instruments that would fall under the bail-in clause especially when the FRDI Bill covers a wide range of financial institutions like banks, insurance companies, stock exchanges, NBFCs, etc, offering multiple retail products. The draft version fails to mention details on the extent to which depositors would get insurance coverage. It is not clear if the new Resolution Corporation will have staff with the required technical skills to do risk assessment . The draft version fails to address critical issues.

Srinivasan Velamur

Chennai

Neglected farmers

Budget 2018 cannot but focus on the agro-rural sector. That said, the Indian farmer’s basic needs, water and market, have escaped his/her grasp. There are numerous Central and State schemes for farmers, but due to lack of coordination, they fail the farmer.

The key concern of farmer sis to sell their produce. This is where they face deep and abiding disillusionment. The Sampada Yojana was envisaged for ease of marketing, and processing the surplus. If this too loses its identity in the sea of schemes, we will be hard put to uplift rural incomes.

R Narayanan

Navi Mumbai

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