oppn parties Reforming PSU Banks: Cloud Covered rainbow
OPINIONS : Strongly Expressed

January 29, 2023

People Are Talking About

Welcoming 2023

News Snippets

  • RBI governor Shaktikanta Das says that inflation is easing and the current account deficit is manageable
  • Adani Enterprises FPO sees just 1% subscription on the first day as the stock goes down to Rs 2762, much below the price band of Rs 3112-3276
  • Stocks bleed on Friday post the Hindenburg report as Adani stocks are hammered: Sensex loses 874 points to 59330 and Nifty 287 points to 17604
  • Rs 263cr TDS scam detected by the I-T department. A mid-level officer was the kingpin and had amassed huge wealth
  • Women's U-19 World Cup -India reaches the final by beating New Zealand by 8 wickets
  • New Zealand beat India by 21 runs in the first T20 as spinners choke Indian batters
  • Sania Mirza and Rohan Bopanna lose in the Australian Open finals
  • Sania Mirza and Rohan Bopanna lose in the final of the Australian Open
  • India to play New Zealand in the first T20 of the three-match series in Ranchi today
  • RBI has proposed special purpose vehicles (SPEs) mechanism to sell bad loans to interested investors via securitization
  • JD(U) decides not to attend the Bharat Jodo Yatra finale in Srinagar
  • Hindenburg defends its report on the Adani group, dares Gautam Adani to sue it in the US
  • BJP's talks with Tipra Motha in Tripura make no headway but the party is confident of winning in the ensuing elections
  • Pathan is a super hit at the box office: Rs 57cr in India (worldwide Rs 106cr) on Day 1 and then Rs 70cr on Day 2 which was Republic Day holiday
  • Centre tells Delhi HC that Covid vaccines can't be mixed when taking the second dose
A Mirage2000 and A Sukhoi 30 of the Indian Air Force on a training mission crashed separately, in Bharatpur in Rajasthan and Morena in Madhya Pradesh, killing one pilot
oppn parties
Reforming PSU Banks: Cloud Covered rainbow

By Sunil Garodia
First publised on 2015-09-25 15:56:14

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
The government has grandiosely named its reform initiative for Public Sector Banks (PSU’s) as Indradhanush. But the measures announced till now seem to be hesitant and half-baked. Hence the rainbow is hidden by dark clouds.

The government has announced a seven pronged reforms package that falls short of what is urgently needed for these banks, several of which are gasping for survival. The package announced includes appointments, board of bureau, capitalization, empowerment, framework of accountability, de-stressing and governance reforms. While the government should be commended for making a beginning, it needs to be stressed that this is a case of too little, too late.

The appointments announced were that of former Microsoft India Chairman Ravi Venkatesan as Chairman of Bank of Baroda, T N Manoharan as Non-Executive Chairman of Canara Bank, G Padmanabhan as Non-Executive Chairman of Bank of India and Rakesh Sharma Of Lakshmi Vilas Bank as MD & CEO Of Canara Bank. It was announced that six more Non-Executive Chairman posts will be filled in 6 months.

Various amounts have been earmarked as fresh capital infusion in PSU banks this financial year (see chart).

The government said that the bank boards bureau will be set up by April 2016. It will comprise of three government appointees and three outside experts and will be headed by the RBI governor. While this may usher in professionalism in appointments, one is skeptical as most governments will like to appoint blue-eyed boys to top posts in banks and government appointees in the bureau will continue to facilitate that.

A good measure introduced under framework of accountability is the change from the old method of topline and balance sheet growth to profitability. Under governance, the government announced that performance incentives and ESOPs will be given. This can go a long way in increasing efficiency.

The talk about empowerment, framework of accountability and governance reforms will come to naught if government holding is not brought below 51% through disinvestment. For, if the government holds more than 51% shares, the finance ministry meddles in the working of the banks and sets them unrealistic targets for populist schemes like Jan Dhan. Since private banks are under no obligation to implement these schemes, it becomes tough for PSU’s to compete with them and report profits under the stress of forced accounts that earn no revenue.

PSU banks will remain sick as long as political interference and Finance Ministry control remains. Professional management will work only if it is accountable to the Board of Directors and not to the finance secretary or the minister. Hence, the government should seriously think about reducing its holding, and thereby the stranglehold, on these banks to allow them breathing space. It is sad that banking entities that have massive infrastructure to cater to millions of customers efficiently are forced to commit these assets for purposes that have little or no relation to banking.