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.)