Banking Crisis Is Frightening, Says Abhijit Banerjee

Govt must bring down stake in PSU banks less than 50%, says Nobel Laureate

The 2019 Nobel Prize winner for economics Abhijit Banerjee on Tuesday said the current crisis in the Indian banking sector was frightening and the public sector banking system in the country was paralysed because of fear of investigation.

“The banking crisis is frightening. I think we should worry about it a lot. First, (it was said) that the banks are fine and suddenly there is a problem.

“That is a sign of the fact that balance sheets somehow are not picking up enough information. We should be vigilant about this is not happening,” Banerjee said while addressing a press conference organised by the Kolkata-based Liver Foundation.

Banerjee, who shared the 2019 Nobel Prize for Economics with his wife and colleague from the Massachusetts Institute of Technology, Esther Duflo, and Harvard University Professor Michael Kremer, said the government should be seriously thinking about reducing its stake in public sector banks below 50 per cent so that the Central Vigilance Commission (CVC) does not regulate them. “If the government owns more than 50 per cent of the equity then the CVC is empowered to investigate every individual default and this is a paralysing fact for the bankers,” said Banerjee.

“The banking system is paralysed by fear of investigation and it leads to hiding of faults which then creates bigger problems.

The government should have less equity in banks so that the fear psychosis in the banking sector is removed,” said Banerjee.