Editorial : SOME MEDICINE WILL BE BITTER FOR BANKS

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State-owned Dena Bank’s scrip fell almost 6% to .`17.65 on Monday, after the Reserve Bank of India (RBI) directed the bank not to issue any fresh loans or hire personnel due to a surge(वृद्धि) in bad loans. This is not unexpected. The bank’s books must be cleaned up to nurse it back to health. Reportedly, other banks that are under the so-called prompt and corrective action (PCA) worry that a similar(समान/समरूप) directive(निर्देश)by the RBI would dent their business. A ban on freshlending(उधार देना) would crimp(ऐंठना/

समेटना) future interest income.The working capital requirements for existing clients would be squeezed(निचोड़ा हुआ) if banks are banned from giving credit. So, the worries of public sector banks (PSBs) that have weak operational and financial metrics are not entirely(पूरी तरह से/संपूर्णतया) misplaced. Eleven out of the 21 state-owned banks are under PCA due to mounting bad loans, weak capital levels and low return on assets. PCA is warranted to limit the damage that these banks can do to the system.

These banks face restrictions(प्रतिबंध) on dividend(भाग/ लाभांश), branch expansion and directors’ compensation(मुआवजा). They must put the bankruptcy(दिवालियापन) code to use to clean up their books and explore fee-based opportunities(अवसरों/मौक़ा). The government should also infuse(डालना) capital in banks that build up their balance-sheets so that they can start lending afresh. Some state-owned banks that want to merge for valid commercial reasons to consolidate(मजबूत/समेकित करना)should be allowed to do so, provided they meet tougher loss-absorbing(नुकसान अवशोषित) capacity norms.The ownership structure of PSBs and the policy on remuneration(मेहनताना/मुआविज़ा) needs an overhaul to give banks more functional and operational autonomy. Real reform is to create a holding company that owns a majority of the equity(निष्पक्षता/न्यायनीति) in every public sector bank. Bonds, rather than bank loans, should fund large, long gestation infrastructure(आधारिक संरचना)projects.

Important Vocabulary

1.Lending(उधार देना)
Synonyms: add, afford, allow, contribute, extend
Antonyms: conceal, decrease, deny, disapprove, hold

2.Crimp(ऐंठना/समेटना)
Synonyms: coil, crease, crinkle, crisp, crumple
Antonyms: straighten

3.Surge(वृद्धि)
Synonyms: deluge, flood, flow, growth, outpouring
Antonyms: decline, decrease

4.Squeezed(निचोड़ा हुआ)
Synonyms: clutch, compress, cram, crush, grip
Antonyms: let go, release, uncompress, allow, free

5.Remuneration(मेहनताना/मुआविज़ा)
Synonyms: compensation, commission, pay, reimbursement, rewar

6.Restrictions(प्रतिबंध)
Synonyms: check, condition, constraint, control, curb
Antonyms: allowance, liberation, permission, advantage, freedom