Based on some opaque calculation, the government has decided that a sum of Rs 30,600 crore would finance this guarantee. If the government’s assurances are genuine, banks should be able to demand and possibly get a better price and take a smaller haircut.Given the guarantee, the security receipts will not be treated as bad assets backed by bad loans. Since they will not have to be provisioned for, the banks get a partial reprieve. But if the market does not validate the price set for the loans, the government’s guarantee will come into play.If it is the bank that takes the loss and is not recapitalised, there is a real danger that the ordinary depositor will have to bear the burden of the loss due to transfers to big business. If the government, through its guarantee, finances the loss, the tax payer and the ordinary citizen deprived of the benefit of that volume of government spending would be the losers.In sum, in whatever way whitewashed, bad debt and the schemes to deal with them are nothing more than means of engineering transfer of wealth to a few corporate houses at the expense of the rest.(IPA Service)(Views are personal)
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