Financial Scene C.R.L. Narasimhan

Big-bang? Hardly

Union Finance Minister Arun Jaitley.

Union Finance Minister Arun Jaitley.

On Friday August 14, 2015, Finance Minister Arun Jaitley unveiled a seven point agenda for public sector banks. Announced amid a blaze of publicity the plan of action labelled ‘Indradhanush’ is not short on hype. However, though hailed in some quarters as the most noteworthy development since their nationalisation (beginning 1969) the latest action plan’s impact on the dominant government owned banking sector will be evolutionary rather than transformative. Some of the points in the agenda can be dismissed as mere cliches unless all the parties (the government included ) take them seriously. In that sense the agenda items are more akin to the recommendations of the several expert groups, that PSB banks are familiar with.

None of the items is new or original. The revamping of the board of directors of banks is a proposal espoused by several groups, the last and most notable of them being the >P.J. Nayak Committee>.

The government has borrowed freely from that Committee’s report and that is a good development. However, even while accepting — and in a few cases even implementing — the Nayak Committee’s report, the government appears to be playing safe.

For instance, on the crucial question of finding new means to raise resources for the banks, the government’s action plan has very few new ideas on raising the massive resources that these banks will require both to clean up their balance sheets as well as to meet the new capital adequacy norms. The >Nayak Committee had recommended a holding company or an investment trust, to which will be vested government’s holding in public sector banks. This could facilitate fund raising but it is debatable whether such a move would nullify the deleterious consequences of government ownership. The real solution might be to let government’s majority shareholding fall below 50 per cent. Successive governments will simply not countenance such a move.

It is not surprising at all that the latest action plan naturally skips such a proposal. Instead the agenda focuses on non-controversial issues such as completing the process of appointing non-executive chairmen for the PSBs.

A lot of favourable publicity has been generated over the proposals to revamp the selection procedures relating to the top most officials of banks. Apart from appointing non-executive chairmen, the action plan envisages the creation of a Bank Board Bureau, which will become operational by April 2016. The board will have the onerous responsibility of scouting heads of PSBs, recommending recapitalisation options, and facilitating the burden of non-performing assets (NPAs). The government is already looking out for competent people to man the board, the setting up of which is one of the principal recommendations of the P. J. Nayak Committee,

One hopes that the government’s expectations from the board will materialise. It is not easy for the top management of PSB’s to shift gears even when such steps are recommended by an apex body.

What is going to be of crucial importance is how accountability issues pan out. As it is oversight by vigilance and CBI has been a bug bear and is one of the main reasons why PSBs are hobbled in their decision making.

Mr. Jaitley is not the first Finance Minister to point out the vagaries of the vigilance procedures. Yet there is very little in the new agenda that will bring comfort the operating staff.

One waits for further clarifications from the government in this very crucial matter that not only impairs decision making but also ruins the image of banks. Accountability, it must be reiterated for the hundredth time is part and parcel of commercial activity. What is needed is the wisdom to separate genuine commercial decisions that go wrong from mala fide decisions.

Decisions regarding streamlining and deepening the debt market are welcome. Apart from other benefits they can to some extent take the pressure off commercial lenders. The burdensome NPA issues can also be addressed through transfer of bad loans to asset reconstruction companies. These and the plan to recapitalise PSBs are part of an ongoing process and they can hardly be big-bang reform.

There is plenty of excitement over the appointment of non-executive chairmen to PSB boards. The appointment of top notch professionals should be welcomed whole heartedly.

Even greater interest is evinced in the appointment of MD and CEOs, especially in the context of choosing two bankers from outside the PSB fold to head Bank of Baroda and Canara Bank. One certainly wishes these two gentlemen well but their task will be daunting especially in the light of the huge expectations that have been raised.

They will also have to reckon with the disappointment of the existing top management of the two banks who have been denied a chance.

To sum up, Indradhanush is hardly the stuff of big bang reform. It promises change but has not taken any significant steps.

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Printable version | Sep 20, 2022 10:49:27 pm |