Rs 127-bn PNB scam and NPA crisis are contributing to banking paralysis

The authorities concerned cannot possibly be unaware of the consequences of their actions

A spectre is haunting the Indian economy today — the spectre of banking paralysis. If it lingers for too long, it could seriously undermine the ongoing economic recovery.

Two developments are contributing to paralysis in banking. One is the hysteria that seems to have gripped policy makers and the media following the disclosure of the Rs 127-billion fraud at Punjab National Bank. The other is the resolution framework that RBI has laid out for banks and that has taken effect from March 1.

The fraud is certainly a cause for concern. Every fraud shows up weaknesses in systems and processes. In the