Balance sheets of all the banks were very bad, why?
There are two reasons for that. First when there was excess liquidity, Treasury bill’s rate came down less than a percent. But, the rates provided by banks had still not fallen. Along with the rise in liquidity, bank’s cost also increases simultaneously. Loans were not invested properly. Secondly, due to bad debts in the real estate and in the transportation sector (Tipper, Heavy equipment) during the period. This increased losses. So, due to interest rates and bad debts, balance sheets are very weak.
Till when will this situation exist?
These two problems will not be solved immediately. The situation will still exist for another 1-2 years.
Will real estate sector take banking sector to the graves along with it?
This will not happen. The money gone in the real estate is expended, not lost. The value will always be there. Only in bank’s balance sheet, bad debts and unrecovered interests will be seen.
Liquidity is on a rise. But, investments have not been likewise. Why have banks not been able to invest?
In this time, we cannot provide loans. There was liquidity crisis for a long time and then liquidity increased suddenly. Normal increase is 10-12 per cent, but in our scenario, it increased by 22-23 percent. The money we have received cannot be risked. Banks will try to invest it securely. We should not repeat mistakes of the past and we are in no condition to go back to real estate and share market.
There are talks about productive sectors. But, in what should we invest? In the productive sector we cannot recover money quickly. We can commit 10 billion to hydropower, but it will take three years to recover the money.(Nagarik)