Action plan to fix public sector banks

Action plan to fix public sector banks: The bloated levels of stressed assets in India’s state-owned banks have been a big cause for concern for quite some time now. With the Reserve Bank of India keeping up the pressure on them to identif

My VIEW:

March 11, 2016

Revamping PSBs

This refers to your editorial “Action plan to fix public sector banks” (The Hindu, March 11, 2016). The debate on the ills of Indian financial sector, with focus on stressed assets, is catching up. This season, there is more clarity in the approaches of RBI and finance ministry on the steps to be taken to cleanse the banking system. Judiciary at the highest level is also taking a proactive stance in handling wilful defaulters. In the long run, the present moves will help the system work better and in the effort to meet expectations of the clientele and stakeholders, professional efficiency improves.

The criticism faced by PSBs in isolation these days, emanates from  the lobby which has been vehement in its plea to privatise several sectors in Indian Economy and has all along been playing a role in painting a gloomy picture of PSUs and the banks in public sector in particular.

The Indian banking sector is not in as bad a shape as is being made out by some analysts and external agencies. Major Indian commercial banks including SBI have been able to meet all statutory requirements. Unlike their corporate co-travellers, banks are meeting their payment obligations on due dates and in the recent past there have been no bank failures in the commercial banking sector in India. Part of credit for this should go to the vigilant regulator. This is not to argue that all is well as regards functioning of commercial banks.

There is immediate need to restore the health of the banking system impaired mainly by reluctance of big borrowers to make timely repayment and heavy burden on public sector banks (PSBs) arising from workload and drain on resources in performance of social responsibilities.

There is no point in arguing now that the overhaul and professionalization of public sector banks (PSBs) should have happened along with bank nationalisation and there should have been regular ‘health checks’ and ongoing corrections. Just as a ‘health check-up’ does not change the condition of a person, the re-classification of more loans as NPAs does not alter a bank’s ability to change. The need of the hour is to support banks to recover their dues from borrowers who have the capacity to repay, infuse professionalism in the banks’ working and restore the faith in the banking system. The present moves from government and RBI should be seen in this perspective.

As private sector banks have failed to perform their responsibilities and are not too willing to grow (their share in banking business is less than 30 per cent), the call from certain quarters to privatise the existing public sector banks does not make much sense. Failure of several banks in the private sector, including the Global Trust Bank, is fresh in our memory. Perhaps, time is opportune to reverse the thinking and for the government to consider nationalising entire banking business outside cooperative sector and restructuring the commercial banking system to serve public interest.

M G Warrier, Mumbai