Chief Economic Adviser (CEA) Arvind Subramanian on Monday said there had been a breakdown of internal controls and external regulatory systems in public sector banks (PSBs) in the light of the ₹11,500-crore Punjab National Bank fraud.
“The problem has been festering for a long time and it is not just the PNB alone; there are issues with the Bank of Baroda and State Bank of India, too. We have to look at how to improve internal controls and consider whether it has anything to do with the ownership,” he said.
Scams “do not happen in public sector banks alone as most scams worldwide had happened in what were considered the best of private sector banks, but here we have the PSBs,” he said at a gathering at a talk organised by the public discourse forum, Manthan.
Although he spoke mostly on the ‘Universal Basic Income’ (UBI) idea, which he unveiled in the last year Economic Survey, the CEA did not hesitate to give his take on the raging controversy when a question was posed to him on the PNB scam.
Banks' ownership
“We have to consider what to do with the banks’ ownership, whether they should be privatised totally or they should have private sector participation,” he said, adding that the current issue also put a serious question mark on the functioning of the self-regulating professional bodies like the Institute of Chartered Accountants of India (ICAI).
“It reflects very badly on the auditors and chartered accountants. Self-regulation, I think, is equal to self-praise,” he said and questioned the role of the external regulator.
Mr. Subramanian was quite sure that the magnitude of bad assets (non-performing assets) of various banks could easily be 25% to 35% more of what had been disclosed in public.
External controls
“External controls should be reviewed as the banking regulator has not been up to the job. We need to assess how to go about it, all of them need to be reviewed,” he said. At the same time, he said, a lot of progress had been made in recent years in coming to grips with regard to NPAs, taking up recapitalisation, the Bankruptcy Act, and so on.
With regard to UBI, the CEA said he was glad that the governments of Telangana and Karnataka had resolved to take up what he called a ‘quasi’ UBI of cash entitlements to farmers even though he had propounded a basic income for all citizens. Just like the political class was responding to crisis in the agriculture, the current crises in the banking sector should be used to bring about changes, he said.
