The big bank theory

The big bank theory: There has been enough talk about how to steer the bank consolidation process. It is time for concrete action


March 11, 2016

Big bank theory
This refers to your editorial “The big bank theory” (HBL, March 11). 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
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


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