Government announced a third re-capitalization of People’s Bank costing taxpayers a mammoth Rs.8 .5 billion. Government announced a third re-capitalization of People’s Bank costing taxpayers a mammoth Rs.8 .5 billion. Currently, People’s Bank is the only large bank not meeting Central Bank’s minimum capital limits.
The government re-capitalisation drive will require People’s Bank to pay annual dividends with management oversight vested with a state agency.
But experts say keeping ownership with the state leaves the door wide open for old ghosts to start haunting again.
Badly run banks are like pyramid schemes.
Unfortunately many banks in poor countries especially ones owned by the state are managed like pyramid schemes.
State owned banks are pushed to give loans to unprofitable government owned businesses without adequate risk assessment.
Politicians also put pressure on state banks to lend to their cronies.
However, if deposits are growing banks can use the new deposits to pay interest on the old ones and stay liquid, like pyramid schemes.
In many poor cou