The government has advanced several reasons for turning down the external commercial borrowing (ECB) proposals of Reliance Industries and ICICI Bank.
One of them is that domestic credit off-take has not picked up, and, if the ECB route is blocked, companies will be forced to take their loans in rupees from local banks. This is strange logic.
In effect, the government is imposing a cost on companies by not allowing them to borrow from the cheapest available sources.
More From This Section
The beneficiaries of the policy, of course, are the local banks, who can now hopefully find use for their idle funds.
Importantly in this context, Fitch Ratings has recently pointed out that the non-performing assets of Indian banks will double once the 90-day NPA norm is put into effect.
That may be an overstatement, considering that banks still have plenty of cushion in terms of potential capital gains, thanks to interest rates continuing to decline.
Nevertheless, the fact remains that high NPA levels push up banks