The "trilemma" of central banks is well-known. It postulates that a central bank can at one time pursue only two of the three policy desirables - a stable foreign exchange rate, free capital flows and an independent monetary policy.
The government, too, is struggling with its own trilemma - a resolution of banks' non-performing assets (NPA) problems, triggering investment with more bank lending to projects, and improving the capability, independence and governance standards of the public sector banks' (PSB) boards, as suggested by the Nayak Committee report.
This trilemma became evident when the Prime Minister's Office met with PSB managers to address the financing of some mega projects, and when the chairman of the Banks Board Bureau wanted banks to chip in and kick-start investment.
It is well-known how government preference for specific projects being financed by banks led to the ballooning of NPAs. If the slack in private investment is sought to be overcome by bank financing, we are sowing the seeds of another NPA rash. The Centre must make the private sector rely more on markets, not on banks to bail them out.
P Datta, Kolkata
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The government, too, is struggling with its own trilemma - a resolution of banks' non-performing assets (NPA) problems, triggering investment with more bank lending to projects, and improving the capability, independence and governance standards of the public sector banks' (PSB) boards, as suggested by the Nayak Committee report.
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This trilemma became evident when the Prime Minister's Office met with PSB managers to address the financing of some mega projects, and when the chairman of the Banks Board Bureau wanted banks to chip in and kick-start investment.
It is well-known how government preference for specific projects being financed by banks led to the ballooning of NPAs. If the slack in private investment is sought to be overcome by bank financing, we are sowing the seeds of another NPA rash. The Centre must make the private sector rely more on markets, not on banks to bail them out.
P Datta, Kolkata
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number