Strong cases have emerged to seek increased regulation and private sector participation in public sector banks in the wake of recent episodes, including the Punjab National Bank scam, said Chief Economic Adviser Arvind Subramanian.
Citing recent incidents in the Indian banking system such as the Punjab National Bank loan fraud, Bank of Baroda’s South Africa exit plan and SBI’s higher provisioning for bad debts, Mr. Subramanian said that the key was how to take advantage of these events and make policies to ensure that these did not happen again.
Mr. Subramanian was delivering the inaugural address at the Madras Management Association Annual convention 2018 here on Saturday.
“The big public sector banks, which we thought were reasonably efficiently run, have got into trouble. So, the question is: how do you change this going forward?” he said.
Mr. Subramanian said that the possibility of allowing a much greater majority private sector participation in the public sector banks must be seriously considered.
Taxpayers’ money was used to recapitalise the public sector banks, which had been facing the high non- performing assets problem. “The question is, are we getting enough value for this taxpayer money and will this taxpayer money be better protected in the current government ownership structure or will it require a different policy structure?” Mr. Subramanian said. “The government also realises that some banks are unviable and need to be shrunk. There are three strong cases which have emerged for private participation in public sector banks. I am not saying all public sector banks should be privatised,” he said.
‘Reform practices’
The CEA said some people had suggested that the public sector banks’ governance practices should be reformed first before looking at private participation.
“But we have been at it for 30-40 years. What is the guarantee that what is recommended now will be implemented more effectively than in the past?” he asked.
One of the strong cases for private participation in public sector banks was that they were “handicapped” in terms of recruitment procedures and HR procedures due to their ownership, when compared with their private sector peers.
Decision making in the Indian government was paralysed by the fear of four Cs — Court, CBI, CVC and CAG, he said. “These are four overhanging fruits over honest decision making, affected by the government structure,” the CEA said. One of the problems was that during the boom period it was PSBs that had financed the infrastructure sector and got into trouble. They are now finding it difficult to get out of the situation, he added.
