How Chidambaram can walk the talk on bank issues

If Chidambaram’s expectation comes from genuine concern for public sector units, then it should be demonstrated by not giving ‘informal’ directions to transfer surplus income or profit to government or declare dividends to meet budgeted ‘quota’ of receipts

Finance Minister P Chidambaram’s loud thinking at the 78th Foundation Day celebrations of Indian Overseas bank on the role expectations from the public sector banks is indicative of a welcome change in government of India (GOI)’s approach to management of public sector undertakings (PSUs) in general.


The following observations by the FM are comforting, as they signal a change in GOI’s approach to the management of public sector organizations including Life Insurance Corp of India (LIC) and banks and statutory bodies like Reserve Bank of India (RBI):

  1. The claims of staff and employees should be duly acknowledged, recognised and fair and just settlements arrived at.
  2. There is humungous need for capital. Banks have to find their own capital from retained earnings. Banks had pumped in Rs35,000 crore and Rs37,000 crore capital from retained earnings in 2011-12 and 2012-13, respectively.
  3. We cannot show laxity to wilful defaulters. The amount of non-performing assets (NPAs) in September 2013 has more than doubled since March 2011. It cannot be where loans will become non-performing, borrowers prosper and lenders suffer. Banks must identify wilful defaulters, take stern steps to recover loans from wilful defaulters.

FM should walk the talk by taking the following initiatives:

  1. Take back the responsibility of wage negotiations from Indian Bank’s Association (IBA),  which is going by the traditional method of first offering some paltry rise, then stepping up commensurate with the pressure mounting up and coming to a settlement at a ‘convenient’ time, without clinching anything on ‘employee responsibility’. Chidambaram should give clear indications about the expectations from management and employees of banks and express readiness to offer market-related wage structure.
  2. It is common knowledge that GOI has been milking profit-making public sector undertakings, including public sector banks and statutory bodies, dry by making unreasonable demands for cash transfer to government or diversion of resources to less profitable avenues. If FM’s expectation comes from genuine concern for the health of PSUs, this should be demonstrated by not giving ‘informal’ directions to transfer surplus income/ profit to GOI or declare dividends to meet budgeted ‘quota’ of receipts from government-owned organizations.
  3. GOI should provide legislative and other support to banks for recovering dues from wilful defaulters.

To read more articles by MG Warrier, please click here.

(MG Warrier is former general manager of Reserve Bank of India.)

Ramesh Jaradhara
1 decade ago
NPAs become a big burden for PSU banks due to laxity of govt action and legislative proceedings.If govt is keen to recover bad loans from willful defaulters, the position of banks will definitely improve.
S K Nataraj
1 decade ago
I fully agree with Mr. Warrier's views. The FM has only the responsibility to lay down broad policy guidelines and it is not for him to dictate to public sector banks to pay more to the country's exchequer by way of dividends. He can broadly state as a Finmin that they should follow prudent lending practices, and curb the NPAs and also exhort the PSbs to take sterner measures for NPA recovery, and boost lending to certain productive sectors. But it is solely left to the banks to follow what practices they feel are right and prudent with regard to interest, sectors that need to be financed, the quantum etc. banks have a huge responsibility to their stakeholders too, the finmin is clearly exceeding his brief in spelling that PSBs ought to rake in the moolah and dole out higher dividends to the government. Already his acquiescence in the matter of opening of more than 200 branches in his constituency Sivaganga has meant that most of these branches are not turning in any profits and are loss- making. Let him correct things in his constituency first, and make every bank branch in Sivaganga profitable. After that, he will do well to address the profitability concerns of the PS Banks.
1 decade ago
While granting & recovery of loans are the responsibility of the concerned officers/executives,paying minimum eligible bonus of 8% goes automatically,and it is upto the managementg to further increase or not,subject bank"s performance towards recovery of bad debts as well.Most of the dafaulters are not persons connected with MNC and have other investments in their or in their family names.Hence, the bank has to find out to keep in touch with the borrwers and ensure the banks gets its legitimat income on their borrwings as well,.
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