A Development Financial Institution (DFI) is in the offing. This is the latest in a series of “attempts” from the Union Government to “speed up” infrastructure and other development activities of the nation. The move, as was proposed in the last budget, comes at a time when the nation’s financial institutions, prominently the banking sector, are faced with a serious existential crisis. Frequent strikes by unions to protect the already well-protected employees’ interests only add to the existing mess.
The reason cited by finance minister Nirmala Sitharaman for setting up the DFI is that there was no bank that could take up long-term risk and funds development. In her budget proposals, she had proposed to set apart Rs 20,000 crore for the DFI, as part funding for the $1.5trillion infra development plans for the coming years. With a capital base of Rs 20,000 crore, DFI aims at meeting a lending target of Rs 5 lakh crore in three years. Initially, DFI will be fully owned by the government and over time the government’s share will come down to 26 per cent. Governments come and go and institutions created at one time are mishandled by successive governments in apparent trial and error modes. The arrival of Modi in Delhi in 2014 saw the Planning Commission being disbanded and the Niti Aayog come into being. How much such fancy changes helped the nation is a subject of serious debate.
Bad debts saga, meaning Non-Performing Assets of public sector banks that ran into more than 10 lakh crore a while ago, is only one part of the overall crisis gripping India’ financial sector. Regulatory frameworks failed. The health of the banking sector is going from bad to worse. While the first Modi government took some steps to improve the scenario, nothing much could be changed. Such was the rot that has set into the system. Things are moving around in circles. The government is finding it difficult to get back the billions funneled abroad by big business sharks, who took huge loans and would not repay citing one excuse or the other.
Faced with this situation, the government is pumping in huge sums to save the banking sector. This is the money that the citizens pay as taxes and that lay in the exchequer, which is being squandered rather than making serious efforts to set things right with the banking systems. With whimsical changes, the systems get shaken and often weakened. Now the banking sector is also up in arms against the privatisation plans of the Modi Government.