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Rohan G's avatar

superb write-up as usual! it does seem difficult for banks who will be lending and investing, interesting to see this. Maybe banks will scratch each other's backs by investing in a bank's fund which hasn't lent to that borrower.

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nitroman175's avatar

I think you are missing one point.

Lets say BANK A has lent money to company B.

Now Company B has not given back money.

BANK A invests some money in AIF Fund which inturn invests in Company B ( Which is struggling because it could not pay back money to lenders ). Note this struggling part

Now what happens is the bank loses money on 2 fronts even if it gets back the money from company B.

1 Low quality of investment by bank which could have invested in other good companies

2 Liquidity shortage which affects the DEPOSITS.

Add to this as you said even more burden of maintaining the provisions.

This all seems like bad thing for banks and customers on the whole. Its like im lending 10 rupees, and investing 10 more rupees to get back the initial 10 rupees, It resulted in loss of time and money.

Pls correct if am wrong!

Agree on your point though that penalising the banks which does evergreening..

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