Reality of Global Crisis

It is now wave of fear and distrust that has adversely affected the banking, stock market and financial sector in the world. Measure taken by Bush administration has not produced any fruitful, effective and positive results neither in banking nor in share market.Bailout package of 700 billion dollar accompanied by aid to AIG and other financial Institutes has generated more demand from corporate as also falling banks for further increase in bailout package. Not only this, all major countries have been constrained to follow this path of bailout package. In India corporate sector has demanded for Rs.one lac crore worth bailout package inspite of the fact that FM Mr. Chidambram claimed a few days ago that India is not affected by foreign bank crisis and Indian banks are strong and stock market is wisely regulated.On the one hand government claims that prices under free economy is decided by market forces and government has nothing to intervene, on the other they do not hesitate to withdraw restriction of Participatory Notes (PN) knowing very well that the same PN had created bad effects in share market and caused loss of income tax .Same PN was treated as source of terror fund coming into our system.It seems to me FM does not want to understand that the real cause of present crisis is not what he pretends to understand. As a matter of fact all foreign countries have now started thinking in terms of nationalization of banking sector, directly or indirectly through bailout package in return of equity rights.There is no doubt to me that extraordinary freedom to banking to create so called competitiveness in the name of unwarranted globalization, privatization and liberalization has caused the current crisis and bankers in the name of growth has forgotten the basis principles of banking and started reckless financing with collateral or without collateral.In the sphere of real estate or commonly known retail sectors, bankers are moving fanatically in the market in search of loan takers, either for purchase of home or vehicle. Banker are ready to extend even personal loan without taking any security in the greed of higher rate of interest in the same way as private lenders in the past used to do. They have neither time nor will to verify the creditworthiness of the prospective borrower because they are under pressure to achieve the unachievable target given to them. Bankers do not take pain even to assess the value of flat or apartment or the house which they are going to finance. They are more worried about their target and survival than the quality of lending as also survival of bank. Out leaders know very well that government or the bank cannot recover the money from defaulters due to faulty and ineffective administrative as also judicial system. In their fear of erosion of vote banks ,Our leaders think it wise and prudent to write off /Rs70000/- crores than to ensure effective delivery of credit. To add fuel to fire Government vitiate the culture of recovery by prompting PSU banks writing off the loan of some sector or the other to please their friendly corporate houses or in their desire to enrich their vote banks.That is why I say the real cause of the present turmoil in banking is reckless financing and lack of effective tools to recover the money from defaulters. Otherwise one cannot imagine the reason for sudden erosion of bank’s capital all over the world needing bailout package. Reign of target and blind competition has given rise to rise in default and sharp rise in bad assets and also fraudulent disbursal of credit resulting in ultimate loss. And now falling of banks like playing cards have resulted in panic in investors. People have started withdrawal of money and this stormy wave of exit from banks as also stock market is causing liquidity crisis to deepen further. People have started withdrawing their hard earned money from banks and Mutual fund only because banks have lost faith in the market. Even Insurance sector has become victim of this liquidity crunch, astonishing indeed. Under such critical juncture government need to introspect where they are wrong and what types of mistakes are being repeatedly committed by bankers in the name of competition and growth. Authorities responsible to regulate the system must punish without delay all those who contributed largely in creating the current crisis. Bailout package is the temporary solution but the permanent remedy will come out only when the mistake of the past is not repeated and the real culprit is booked to task.It is worthwhile to stress here that it will be gross blunder if Banks in India try to blame global crisis for irregularities in our banking system. Our problem of inflation, liquidity, falling share market, withdrawal of FII fund and irrecoverability of bad loans has been persisting since long whereas global crisis has come in picture only in the month of Septembr08. Our banks have been hiding bad loans for last several years and presenting false picture .As such position of Indian banks is much more alarming and dangerous. When Indian banks show correct picture even RBI and government of India will be incapacitated to cater to demands of the bank and fail to provide required bailout package.Banks can be run really profitably only by honest, sincere, devoted and loyal persons. Present crisis can be combated by sincere honest workers and honest politicians to restore the lost faith and confidence. Policies based on vote bank cannot help in strengthening of the bank. Financial sector is after all the backbone of the economy and the nation as a whole and hence need preferred attention and it cannot survive long on ventilator of bailout package.I Pray God that wisdom prevails upon our Finance Minister, Prime Minister and other responsible officers in the government on whom depend the fate of the country.

this is the copy of my letter dated 12.10.2008 when the crisis started engulging new areas arising from Lehman Brothers of america