Rajiv Mehrishi - file photo
Rajiv Mehrishi - file photo

Absence of bond market is fuelling banking crises: CAG

By Shailesh Yadav (ANI) | Updated: Oct 23, 2018 22:08 IST

New Delhi [India], Oct 23 (ANI): In the wake of the crisis ensuing in the Infrastructure Leasing & Financial Services Limited (IL&FS), Comptroller and Auditor General of India (CAG) Rajiv Mehrishi opined that that absence of a bond market is the reason behind the current banking crisis in India.
Addressing the launch of the Indian School of Public Policy, Mehrishi said the entire narrative in the public domain is that banking crises is on account of theft and bad lending. "But it is my submission that banking crises is much more complex than that. If you ask me, I will say it is because India has no bond market. Banks have been forced to lend to long gestation infrastructure projects, which, in turn, translates into banking crises."
Citing the lack of discourse over the impact of the absence of a bond market, Mehrishi noted "There has been such a huge issue of asset liability mismatch and nobody is talking about it. There is lack of public policy debate. Nobody questions what the regulator is doing. What is his accountability? If the banks were engaging in lending to thieves, what was the regulator doing? That is also a narrative that never comes in the public domain and that is also due to the lack of debate of public policy. "
Backing Mehrishi's stance, Shamika Ravi, a member of the Economic Advisory Council to the Prime Minister, said there is a pressing need to introduce a bond market in India.
"I do agree with him (Mehrishi). But whether that is the only reason why we have a banking crises is something I'm not sure of. I think the banking crises is one part because we did engineer growth in the second UPA tenure. I think engineered growth has its own cost and we are bearing that cost today, so the non-performing assets (NPAs) crises is a result of that. It would definitely help if lot of this credit load was taken off particularly for long period of investment like infrastructure. To that effect, we should absolutely have serious discussions on policy in India. I think the time is right," she told ANI.
Renowned Economist and former Managing Director of Procter & Gamble Worldwide, Gurucharan Das, also reiterated the stance for the introduction of a bond market in India.
"This is one of the real failures of policy making in India that banks have to take risks in areas which have very long term impacts and that is why they are facing the crises. It is partly the government's fault, as it has trusted private individuals," he noted.
IL&FS has defaulted on multiple payments to lenders. The company, along with its 348 subsidiaries, is facing a liquidity crisis with debts totalling almost Rs 90,000 crore.
The Centre has taken control of the management of the debt-ridden firm that has roiled markets by defaulting on debt, stepping in to check a contagion that could have impacted the financial sector. (ANI)