Friends,
The world’s biggest banks have been showing huge but expected losses. City Bank and BoA have shown losses but are under care of state. Since they will be funded , the overall credit cruch will be to lesser extent.
Back in India, the banks are showing robust profits because low rates now have helped them revalue their bond holdings. Only last year they had to devalue their bond stocks and there were worries about banks profits getting shrunk. The banks here are showing increased level of NPAs, this was expected too. The saving grace is that they have the capacity to fully provide for the NPAs. The govt’s relief packages will see that the corporate loan defaults do not happen on big scale. The trick lies in govt keeping up the tempo of seeing that the industry does not feel pressured due developments away from Indian shores.
In fact the western banking industry was caught in a cesspool of its own making. Their banking practices made borrowers become lenders/investors too and encouraged them to borrow again and lend/invest more. The banking no more remained instrument of collecting capital from savers and lending to users of capital. A simple excercise was converted in to very complex on the strength of IT enablement and marketing gimmicks. It was done to earn a bigger cut in terms of fee etc on the same dollar of savings.
In India too some thing of this sort has been initiated. When somebdy makes a fixed deposit with the banks, he is lured in to borrowing against the same and then asked to invest in MFs and other various schemes. Then he is lured in to buying consumer durables on EMI basis and spend through credit cards. The general public does not gather the full implication of it all. Then comes the case of govts incentive on savings for tax reliefs on one hand and then on giving tax relief on borrowings for house purchase , on the other hand. This makes the banks get FDs and then offer the housing loans to the very same people. Banks charge interest spreads and costs in keeping accounts and offering services. This results in unnecessary and non-productive work in society.
We have been less affected just because of greater proportion of masses has still not been caught in this kind of cow-web. It’s duty of govt to make things simple and the only concession allowable should be the deferment of tax on savings for pension schemes which should have no restriction on withdrawal from such schemes. The amount of withdrawal will naturally become taxable in the year of withdrawal as when deposited it was not taxed. The whole nation will feel relieved and the I-tax deptt will have opportunity to go after tax evader rather than spend time in ascertaining as to who has filed return rightly and on cross checking the reliefs claimed and the supporting documents filed.
I hope the next govt will study this matter in detail and do likewise.
HariOm,
krsnaKhandelwal
Panch Tattva Wisdom 