About a year before the First World War ensnared the ‘Developed World’ into the biggest man-made crisis in history, John Maynard Keynes had flagged the innumerable minefields dotting India’s financial landscape. “In a country so dangerous for banking as India,” Keynes believed the practice of lending and borrowing must be “conducted on the safest possible principles.” Of course, John Maynard Keynes had not surveyed India’s numerous cooperative lenders that even today largely escape active supervision of the central bank, an institution that itself owes its existence to the celebrated economist’s prophetic warnings. It is not hard to imagine, therefore, what his observations would have been if his studies had also included these entities not yet considered ‘systemically important’ by conventional definitions. But that’s where definitions could be misleading — and conceal the minefields that are not signposted often enough for the grave dangers they present to India’s financial system. A simple search on the Reserve Bank of India (RBI) website on urban co-operative banks (UCBs) currently shows that 24 such local area lenders from all four corners of the country have either been placed under fresh central bank directions or have received an extension, requiring them to freeze lending and… Read full this story
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