Bank nationalisation was celebrated as one of the biggest achievements of Indira Gandhi, in 1969. Successive governments, since then, touted rapid bank expansion as the most significant benefit of nationalisation. And, yet, as we get ready to mark 50 years of bank nationalisation, the claims have turned out to be hollow. India’s public sector banks (PSBs) are burdened with bad loans, lack in leadership, are mired in corruption, hamstrung by red-tape and lack of operational flexibility, and uncertain about their future. We are inducting private sector bankers from much smaller banks to manage large PSBs and looking at mergers as the solution to PSBs’ woes. The number of unbanked Indians remains at a high 233 million, even after the massive push under the Jan Dhan Yojana added over 125 million accounts in just two years.
What is mystifying is that, despite the prime minister’s (PM’s) personal interest, two gyan sangams to discuss banking issues, the creation of Banks Board Bureau (BBB) in February 2016 (whose mandate has been expanded a couple of times), there is still no light at the end of the downward spiral into which PSBs are locked. In its latest effort, the government has expanded the role of BBB, reports The Economic Times. Now, apart from helping select PSB directors and raise capital for PSBs as well as formulate their business development strategies, it will also advise the government on extension of tenure and termination of services of directors in State-run banks and institutions. The report further says that BBB will build a data bank containing information relating to the performance of banks and financial institutions and help them with succession planning and frame a code of ethics.
The new, improved mandate, reported on 20th October, still does not put BBB on track for conversion into a holding company for the government stake in PSBs—but it has moved forward a bit in that direction. The PJ Nayak committee, in April 2014, had recommended setting up of a Bank Investment Company to hold government shares, after repealing the Bank Nationalisation Act, the State Bank of India (SBI) Act and the SBI (Subsidiary Banks) Act and bringing banks entirely under the purview of the Companies Act.
Speaking to CNBC in October, Vinod Rai, chairman of BBB, had said: “Immediately our entire focus is on ensuring cleaning up the balance sheets with a view to ensure that the lending process starts immediately.” In another interview to The Economic Times in mid-October, he expressed frustration that senior management is reluctant to take hard decisions on recasting bad loans, despite a conducive environment created by the government. “We are not making much progress and I don’t think we have anybody else to blame but the banks themselves,” he said.
BBB, in consultation with the Reserve Bank of India (RBI) and vigilance agencies, has set up an overseeing committee (OC) to help banks deal with bad loans. It comprises former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar. Mr Rai says that bank consolidation cannot happen unless bad loans are cleaned up significantly.
This move is interesting, because, just a couple of months ago, two former RBI governors were wringing their hands over their own failure to act fast enough on the bad loan issue. In one of his many public engagements before demitting office, Dr Raghuram Rajan had said that there was a need for ‘deep surgery’ to cleanse bank balance sheets and that the central bank should have done the clean-up job earlier.
In response, Dr D Subbarao, his predecessor, who was then promoting his memoirs, admitted that “some of the causes of present (banking) crisis owe to action or inaction of RBI under my watch.” Does this indicate that responsibility for keeping a check on banks and ensuring a clean-up of their balance sheets has shifted from RBI to BBB? It would seem so; and this appears to be with the support of RBI governor Urjit Patel. But it is not clear if banks have got the signal as yet. Gross NPAs (non-performing assets) of PSBs stood at an enormous Rs4.76 lakh crore in FY15-16, compared to Rs2.67 lakh crore in FY14-15.
BBB’s expanded mandate makes it clear that PSBs will have to consult, if not report to it, on most aspects of their management, senior appointments, succession planning and decision-making. As it begins to play a more hands-on role in senior PSB appointments, the change in power structure will become more pronounced. Clean and merit-based appointments at PSB boards, as well as posts of executive director (ED) and above will play a crucial role in their potential turnaround. In the past, senior PSB appointments were, often, purchased by large corporate houses in exchange for loans, write-offs and restructuring and for turning a blind eye to diversion of funds. Many PSB chairmen were appointed, despite adverse remarks in performance reports.
This was the case with Archana Bhargava, former chairman and managing director (CMD) of United Bank of India, who was recently raided by the central bureau of investigation (CBI), as well as SK Jain, former CMD of Syndicate Bank, who was arrested in 2014 for allegedly taking a bribe from Bhushan Steel. Government agencies are also reportedly investigating a former SBI chairman and other senior bankers for serious violations during their tenure.
Will BBB ensure a complete clean-up? It is too early to tell. So far, BBB’s lack of urgency in filling up top posts is a big worry. Or, maybe, BBB is making recommendations but the government has failed to act; there are no facts in the public domain. Moreover, Dr PJ Nayak has already expressed the view that, in its present form (with an RBI deputy governor and secretary of the finance ministry on board), BBB is a far cry from the independent body that was envisaged in his report.
Mr Rai, going by his record as CAG (comptroller and auditor general of India), is capable of rising to the challenge of reviving PSBs; he also seems to have the ear of the RBI governor as well as the government which has given him more powers. However, he will be judged by BBB’s primary mandate to ensure quick and clean appointments to bank boards.
RBI deputy governor SS Mundra put it in perspective, at a banking seminar on 28th September, when he said, “We are able to talk about a driver-less car but I think we are far away to talk about a leaderless bank. I think that is not going to happen tomorrow.”
He said, eight bank CMDs would retire in 2017 and another 10 in 2018. At the ED level, he said, five would retire in 2017, 10 in 2018 and 12 in 2019. Mr Mundra also pleaded for a fixed, five-year tenure for bank chiefs. Three days after the speech, the government granted one-year extension to SBI chief Arundhati Bhattacharya on her last day in office. This speaks volumes about the government’s seriousness on top appointments, accountability and succession at banks as well as BBB. Had BBB recommended anyone for the SBI post, or suggested an extension for Ms Bhattacharya? We don’t know. BBB has recently recommended nine names for promotion as EDs of banks; we will watch how soon they are accepted. You can have the best advisory board with a wide mandate, which makes effective recommendations, but unless the government acts on them, nothing will change.
Who told Mr Sen that PSU banks should not be considered profit centres?? On what basis do PSU bank chairmen go trotting to the finance ministry with a dividend cheque and publish fake photos if that were the case? Does he know that we the tax payers are bailing out these banks? Also, is he really living in India an unaware of the monumental corruption by senior bankers? Ignorance is bliss, but best not to exhibit it in the public domain sir, especially with such intemperate language and ascribing motives.
The problem with India is not enough persons speaking out, not the other way around -- this kind of blind worship, without faces (OR DELIBERATELY SUPPRESSING THEM) is what has brought the country to its knees.
Your comments are not worth even arguing... Courtesy folks like you, our country still is "tolerant" of people like Gandhis.. either it is indeed heights of ignorance OR a criminal intent to manipulate facts so that you can continue enjoying the free lunch and corruption that these PSBs offer to its political bosses and employees. The only losers are the common depositors and taxpayers and people like YOU are to blame.
Why NPA is higher in PSU banks? These experts know the reasons, but never put it in their articles and write-ups. Who is financing Agricultural Credits to the millions of small farmers? Who is financing in Small Help Groups in millions of numbers? Who is financing Small Industries? Who is financing small traders? Who is financing Steel Plants (both small & big)? Who is providing Housing loans in rural areas and underprivileged section of the society? Who is providing finance to Power Generation Units and Power Distribution companies? Who is financing for ‘Food Procurements? Who is financing to build Highways and bridges? Only and only ‘Nationalised Banks’.
Let them come out with the figures of only two items:
One, how much money Governments have invested in these PSU Banks during last 50 years.
Two, how much money the Government has got from PSU banks in the form of Income-Tax and Dividends.
Government has got many times more of their investments from PSU banks. The sole target of such articles/reports is to create a very bad image of the PSU banks among the general public and help the Private Sector Banks to takeover the PSU banks. All of us are to be careful…
Instead of boasting about all these places where PSBs lend, we should question why they lend to these perpetual sources of losses like food procurement, highways and bridges? What is the accountability on recovery or accountability to public depositors and shareholders? If this was meant to be a charity organisation, these banks should not have been listed. Social objectives are good to have, but they should be funded directly by Governments through well designed schemes rather than using instruments of power like PSBs as deep rooted sources of corruption to siphon off public money, and hide behind these so called social objectives as defense.
These ridiculous arguments can be made as defense only by people who have vested interests that are now being threatened as the new government's motivations are certainly not as black as the previous one. They may be short on talent and ideas, but certainly have loads of unquestionable intent to set things right. Indian Public Sector banks + one large private bank and one large foreign bank in India (I'm sure everyone knows which 2 banks I refer to) are today the world's worst managed banks because of their corrupt practices in lending. No other bank in the world even comes close to competing with this rotten lot.