In a bid to pull up ailing public sector banks (PSBs) by their bootstraps, the Union Finance Ministry has embarked on a plan for radical reforms across PSBs during discussions on the opening day of the ‘Gyan Sangam’ retreat, a unique symposium of top bankers, which commenced here on Friday.
A robust strategy for ushering in reforms across PSBs is to emerge after exhaustive discussions with top bankers at the end of the two-day retreat.
“The reforms merely would not be restricted to mergers and acquisitions, and the Finance Ministry would seek out ways to improve the health of ailing state-owned banks,” said Department of Financial Services (DFS) Secretary Hasmukh Adhia at the start of the retreat being held at the plush environs of the National Institute of Bank Management.
Bankers participating in the retreat have been divided into six working groups to assess issues and draw up plans, which are to be presented before Prime Minister Narendra Modi after discussions with Union Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan on the second day of the meet.
Minister of State for Finance Jayant Sinha, in his remarks, said it was imperative to rethink strategies for PSBs, hinting that the Centre was worried about their inability to match their performance with those of the private sector banks.
“The Finance Ministry will moot a rash of reforms to make it easier for public sector banks to raise capital. There is a wide chasm in various performance indicators of private and public sector banks,” said Dr. Adhia, speaking to reporters.
Alternative structures
“We’ve got to think of alternative structures to streamline functioning of PSBs if they are to play a complimentary role in the growth story. How can we make it easy for them to get capital from the market, how can we help them improve the balance sheets and such like,” said Dr. Adhia, remarking that consolidation of the PSBs had been put too long on the backburner.
The kernel of this roadmap for rejuvenating PSBs will centre on an overhaul of the priority sector lending, consolidation and effective use of technology for lending coupled with greater financial penetration.
The gross non-performing asset ratio of PSBs exceeds five per cent, while the figure for private sector banks is a little over two per cent. According to the RBI Financial Stability Report (FSR) released earlier this week, stressed assets at PSBs, including bad debt and restructured loans, exceeded 12 per cent of the total loans (as of September 30, 2014).
The retreat will witness top heads of all PSBs, along with ‘external banking experts’ like K. V. Kamath, P. J. Nayak and Paresh Sukhantkar, brainstorming on a range of issues like financial inclusion, profitable PSL, effective risk profiling and recovery mechanisms to think of ways to ring in efficacy in PSBs and pull them out of the mire.
“We would like to generate ideas on what could be the priority sector prescription for banks in view of the present state of the economy that has undergone a sea change from 1969 [the first major nationalisation of 14 private banks] till now,” Dr. Adhia said.
