Rajesh Bhatt, Commodity OnlineMUMBAI : You have heard banks collapse, you have also heard banks bust. Now welcome to the reality of banking system collapsing.
This is a scenario where the entire financial system falls like nine pins and even the regulator helplessly looking on.
This is not an Indian scenario but very much happening in Iceland, where the country's banking system collapsed in October.
To come out of the crisis, the International Monetary Fund (IMF) has approved a two year loan of $2.1bn.
IMF described the Iceland collapse as a crisis of extraordinary proportions. Will the Indian banks also go the same way?
Well, some experts thank Mrs. Indira Gandhi who presided over the nationalization of banks in 1969 considered one of the significant economic, political and social events of Post Independent India, made a wise decision.
When Indira Gandhi nationalized the Indian banks, its position was marginally sound unlike in Iceland, where the government was forced to take over three of its biggest, debt-laden banks last month.
On the contrary, since the crisis started brewing, Iceland's currency, Krona, has almost halved in value and banking transactions came to a standstill.
But in the early seventies when Indian banks were nationalized, the trust in the financial system increased leading to massive quantitative expansion of the bank customer base and the very nature of savings developed since then.
But India has changed since then and liberalization made India vulnerable to global economy. Indian banks copied western system and put themselves into trouble though they expanded in business.
But it is not the government’s business to be in this business. Government is not supposed to run banks and entrepreneurial ventures.
Experts were against nationalisaton but the legal and ethical part undermined the social part. Emotions exceeded logic or in other words benefits outweighed the costs.
So the collapse of banks and banking system is not the fault of employees, depositors, borrowers, regulator or the government. But if one dissects the case of great banking collapses in world history, the real culprits are people in the management who colludes with criminal minded borrowers to subvert a part of the asset structure resulting in cumulative losses.
But the Indian nationalized bank management is so hardened that sanctioning a genuine loan is tough task, leave alone colluding with criminals.
