PSBs: Level Playing Field Needed - Moneylife

Suggestion for Pending I-T Refund Cases - Moneylife



LEVEL PLAYING FIELD NEEDED!*


This is with regard to “Plummeting Confidence in the Government’s Ability To Tackle PSB Bad Loans” by Sucheta Dalal. It is tough for anyone to rescue public sector banks (PSBs) from the shameful situation they have been dragged into by government policies or to defend the high level of bad loans they have accumulated. Since nationalisation, political leadership has been meddling with the working of PSBs, using the ‘assumed’ ownership rights, with immunity. The miraculous survival of PSBs including SBI (State Bank of India) can be attributed to the net interest margins (NIMs) banks in India were privileged to enjoy continuously. During the current ‘Rajan era’, even at times of near ‘cartelisation’, RBI (Reserve Bank of India) has been merciful when it comes to passing on the benefits of lower resource cost by reducing lending rates.

Judging the performance of banks with reference to the bad loans accumulated or the support they need from the owners, by itself, is not rational. Comparison is always with private sector banks. To get a clear picture, one has to remember that
PSBs’ share in banking business is three times that of private sector banks. What prevents the private sector banks from increasing their share in business is a riddle that policy-makers and regulators should solve, at least at this stage, before succumbing to the pressure to again ‘privatise’ PSBs. 

It may be recalled that banks were nationalised because of the refusal of the private sector to plough back deposits mobilised from small savers to sectors that benefited inclusive economic development. The residual and new private sector banks continue to be selective in providing credit; the social responsibility of the banking system was largely met by PSBs. The corporates, which did not want to follow the banking discipline, used their influence to get credit from PSBs. All these, together, resulted in differential treatment for public and private sector banks. Given a level playing field and semblance of functional autonomy, the future of Indian banking is safe in the hands of PSBs.

MG Warrier, online comment
* Moneylife, March 31, 2016

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