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Nobel laureate Abhijit Banerjee expresses worry about banking crisis; bats for aggressive changes

NEW DELHI: Nobel laureate Abhijit Banerjee on Tuesday flagged concerns about banking crisis in India and called for aggressive changes to deal with the situation. There is a need to bring in important and aggressive changes to deal with the crisis, he said during interactions with media here.

Banerjee said there is need to bring down stake of the government to below 50 per cent in banks so that the decisions are taken without fear of Central Vigilance Commission (CVC).

PM Modi meets Nobel laureate Abhijit Banerjee, says ‘India is proud of his accomplishments’

PM Narendra Modi on Tuesday met Nobel laureate Abhijit Banerjee, an Indian-born American professor at Massachusetts Institute of Technology who won the prestigious award this year in economics for “an experimental approach to alleviating global poverty”. The PM said he “had a healthy and extensive interaction on various subjects” with Banerjee and wished him luck.

“The current banking crisis is frightening and we should worry about it a lot because we see a repeated pattern…We should be vigilant about this. I think we need important and aggressive changes,” he said at interaction with the media organised by Liver Foundation.

Elaborating on changes required, he said, “We should seriously think of reducing equity share of government in public sector banks below 50 per cent so that the Central Vigilance Commission does not regulate (PSU banks)”.

Prodded further, Banerjee said public sector banks were paralysed by “fear” of their decisions being investigated by the CVC on account of the government holding majority stake in them.

“It leads to hiding of defaults, which then creates problems. So, I want the government to have less equity in banks so that the fear psychosis in banking sector is eliminated,” he said.

The banking system has been afflicted by the scourge of high NPAs (non-performing assets) for nearly five years now, which has led to net worth erosion and discovery of scams in the sector, with the Punjab and Maharashtra Cooperative Bank (PMC) being the new addition.

‘He knows what you are trying to do’: When Abhijit Banerjee shared PM Modi’s joke

After his meeting with PM Modi, Nobel laureate Abhijit Banerjee was asked to share his “critical” views on Indian economy. Banerjee replied, “The PM started the meeting by cracking a joke about how the media is trying to trap me into saying anti-Modi things. He’s been watching TV, he’s been watching you guys, he knows what you are trying to do. So, I think stop.”

Earlier in August, Central Vigilance Commission (CVC) had constituted Advisory Board for Banking Frauds (ABBF) headed by former vigilance commissioner TM Bhasin to examine bank fraud over Rs 50 crore and recommend action.

On August 30, finance minister Nirmala Sitharaman had said that the profitability of public sector banks was improving as the total gross non-performing assets of public sector banks came down to Rs 7.9 lakh crore at end-March 2019 from Rs 8.65 lakh crore at end-December 2018.

Banerjee met Prime Minister Narendra Modi earlier in the day. The meeting came on the back of Banerjee, along with fellow economists Esther Duflo and Michael Kremer, being awarded the Nobel Prize in economics for 2019 last week for their use of an experimental approach to alleviating global poverty.

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