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Set deadline to reform public sector banks

DC
Published Jan 5, 2015, 11:57 am IST
Updated Mar 30, 2019, 2:41 am IST
The PM has outlined quite a few objectives that he expects PSU banks to achieve
Reserve Bank of India
 Reserve Bank of India

Whether the Prime Minister and the finance minister got answers to their questions about how to solve the problem created by non-performing assets (NPAs), and how credit growth can pick up, is doubtful, judging by the reports on the Gyan Sangam of the country’s top bankers and RBI governor Raghuram Rajan. There was a recommendation in the seven-point agenda for the government which called for strengthening and ensuring implementation of the legal framework for recovery of NPAs, but this already exists.

Whether it was the five-point commitment from the public sector banks or the seven-point agenda for the government, unless these are sanctified by time-bound implementation this whole exercise will remain just another exercise. However, if they are implemented within a time-frame, it would transform nationalised banks. There is no doubt this can be done and we have the precedence of the Pradhan Mantri Jan Dan Yojna where the same banks crossed the target and the time set by Mr Modi in opening bank accounts for those who didn’t have one.

 

May be Mr Modi needs to set a date for the implementation of the agendas set by various panels. This government has shown that it is serious about cleaning up at least the corruption in appointments by swiftly changing the way the chairman and MDs of public sector banks are appointed. It has successfully done away with the earlier system by which many, if not all, CMDs of PSBs were allegedly appointed. Certain business groups paid whoever was the appointing authority to appoint a certain person as CMD and that person returned the “favour” once he got the job.

 

One cannot quarrel with final recommendations, especially those that envisaged smaller banks building a specific niche to optimise their capabilities and capital, or establishing rule-based underwriting for retail and SMEs and creating/strengthening the credit bureau, or expecting the government to fully empower the banks as far as HR management is concerned. Today the CMDs of PSU banks draw salaries of just a few lakhs while their counterparts in the private sector draw crores. There is no system of rewarding good performers/banks.

The PM has outlined a few objectives for PSU banks, but some of them are the job of the government and elected representatives. Banks should not be used to promote the government’s socio-political agendas. Otherwise it would be unfair to talk of a performance gap between PSUs and private sector banks. There should be a level playing field.

 

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