Sovereign guarantee. What keeps our PSUs alive.

http://www.moneylife.in/article/buying-stocks-of-debt-laden-companies/44802.html

Alas, Been writing about this since late eighties. Banks have been repeatedly baled out with taxpayer money and the NPAs have entered the Forbes 500 list.

As someone rightly said, today, the NPA companies stocks are hitting 52 week highs whilst the lender banks’ stocks are hitting 52 week lows.

The Govt is experimenting with Bank of Baroda. A private sector dynamo as the CEO. However, he is surrounded by Non Performing employees, who have risen up due to passage of time and personal proximity to their superiors.

Unless the PSU Banks are stopped from lending, the tax payer cannot breath easy. Take all the deposit money. Put it in Govt Bonds. At 6%. Govt gets cheap money. Give 5% to depositors. Get rid of 99% of the staff. Just one or two persons per branch. No need for advances or anything. Only transaction banking.

The other alternative is to sell off ownership of the bank to private sector. Or let the PSU Banks be managed by a HDFC Bank. Just hand over the lending functions to the pvt banks. PSU Banks can buy ‘participation’ certificates in lending done by the pvt sector banks.

 

 

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