Banks Aren’t of Any Help Yet

Context:  Since the banking sector is reeling under stress, the Government should focus on reviving the economy to overcome lockdown-induced disruptions.

Issues affecting the banking sector during the pandemic:

• Lockdown-induced disruptions resulted in diminishing consumer confidence and risk aversion. So no hope of improvement in loan delivery of the banks.
• Loan moratorium:  Nearly 70% of the loans public sector banks are under moratorium. There is every chance of the situation getting worse once the moratorium ends. 
• Lack of autonomy: Public sector banks lack a significant degree of autonomy to take up lending decisions.
• Privatisation of banks: Through disinvestment process may not start lending to revive the economy. 

Way Forward:

• Equip the public sector banks with the right mindset so that they can adopt a liberal approach to lending in the immediate run.
• Overseeing Professional Body: Loan decisions of the banks should be overseen by a professional and independent body to promote lending activity.
• Fiscal stimulus: Government should focus on reviving the economy to put it on the path of growth. 

• It should not wait for external stimulus such as vaccine development to decide on fiscal stimulus.

• Reviving the demand: Putting spending power in the hands of the poor and small businesses so that demand can begin to revive.