With the Reserve Bank of India (RBI) cautioning the State government against major market borrowings at exorbitant rates and the Centre allegedly turning a deaf ear to its demand for financial support, nationalised banks are being deemed as a potential option for bailing out the State from the fiscal crisis.
After raising a tranche of ₹6,000 crore in the first week of April from its sanctioned limit, the government remains clueless on sourcing further resources for meeting its recurring expenses, including salary and pension in the months ahead.
The Centre has still not responded to the demands for clearing the Goods and Services Tax compensation, raising the borrowing limit from the current 3% to 5% and transferring arrears due under various heads. The government now has no option but to wait till the market settles down.
Request for support
Post lockdown, the government will have to respond to a cry for life support from different sectors such as micro, small, and medium enterprises, transport, public distribution system, health and a host of others. Already various sections have flagged their demand for urgent financial support and the demand is set to grow even more louder on easing the curbs.
A government that is in the throes of a deep crisis could ill-afford to be benign, but it could not afford to shrug off the responsibility too. The current crisis does not offer any leeway to wait till the market firms up and economic and business activities are back in full swing.
Nationalised banks and public sector undertakings that have substantial reserves at their command could come to the rescue of the government by purchasing bonds floated at competitive rates. Left with very limited lending options, this would be a safe route for the banks to park their funds.
Safe investment
According to Planning Board member K.N. Harilal, banks should shed their insouciant attitude and deem it as an opportunity for safe investment and fulfilment of social commitment.
“Investing in government bonds is perhaps the safest option than thoughtlessly investing it in the private sector,” he says.
All India State Bank of India Employees’ Association general secretary K.S. Krishna shared the view and said that since lending avenues are limited for banks, investing in bonds at reasonable rates would be helpful to the government as well as the banks.
Whether the banks would respond to the demand is what remains to be seen.
