Loan waiver not in bank shareholders’ interest

February 29th, 2008 - 8:46 pm ICT by admin  

A file-photo of P. Chidambaram

Ahmedabad, Feb 29 (IANS) The Rs.600 billion ($15 billion) farm loan waiver announced by Finance Minister P. Chidambaram in the union budget Friday was a “retrograde step” when it came to the corporate governance of banks, an expert with the Indian Institute of Management, Ahmedabad (IIM-A) said. N. Venkiteshwaran, an IIM-A faculty member, said there was a directive to banks to waive farm loans but there was no corresponding provision of reimbursing the written-off amount.

He said a similar scheme was implemented for the corporate sector a few years ago but now the banks that have shareholders other than the government’s own nominees are being asked with a simple fiat to reimburse the losses.

Two decades ago a junior finance minister had also issued a similar directive to banks but “at that time no reforms had been carried out”, he pointed out.

“But two decades later and after carrying out a broad sweep of economic reforms, issuance of a similar directive to write off loans without outlining a plan for reimbursement of losses” shows that India has not moved an inch forward in running the economy differently, Venkiteshwaran told IANS.

Sunil Parekh, a business consultant and former director of the Gujarat chapter of the Confederation of Indian Industry (CII), said the budget was “populist” and aimed at the 2009 Lok Sabha polls.

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