Banks should perform or be privatised

Banks should perform or be privatised: The era of social banking is over; inefficient government banks should be sold off. The question is how to go about doing it...

July 8, 2016
PSBs, Perform or perish!
Dr Charan Singh’s article “Banks should perform or be privatised” (The Hindu Business Line, July 8), hopefully, will open a debate over the future course India’s banking sector can take to meet the emerging challenges posed by recent developments within India and across the world. The conclusion that PSBs should serve as benchmarks for the banking sector, the emphasis that they should work at their efficient best and the need for PSBs to establish very high standards will not be disputed even by enemies of public sector. PSBs can perform and continue in business, fulfilling the expectations or perish. Transfer of inefficiency to private ownership is not an acceptable option.
But, the history and evolution of Indian banking sector during the last 4 decades do not take one to the solution suggested, namely privatisation. With the exception of State Bank of India, Indian banking sector was under private ownership for decades after independence. The need to nationalise was felt in the context of the refusal of private sector to cater to the development needs of the country including taking banking service to semi-urban and rural areas and meeting the credit needs of small borrowers. Such responsibilities are still met by PSBs is evident from the fact that post-nationalisation, the residual and new private sector banks together could, till date, manage a market share of less than 30 per cent in the country’s banking business.
Long term and enduring solution to the present problems of PSBs would lie in a slew of measures, many of which were tried sporadically as quick-fix or first aid ones from time to time. The high powered committee (HPC) suggested in the article should be a representative body of experts, stakeholders including GOI and RBI and employees’ interests. While private sector participation should not be discouraged, at present stage of development, the public sector identity may have to be preserved to ensure the continued performance of priority and social sectors responsibilities by banking sector. The HPC should, inter alia look at:
HR issues including recruitment, career progression and remuneration packages in PSBs vis a vis their successful counterparts.
ii)          Immediate need to ensure efficiency and autonomy in management at top level.
iii)             Possibility of lateral mobility of middle and top level executives across public sector and private sector banks and supervisory and regulatory bodies in the financial sector. Ideally, as early as possible, a Financial Sector Service comparable with other civil services should evolve.
iv)             Merger of loss-making or redundant bank branches with branches of other banks.
v)                Revisiting Lead Bank Scheme to ensure that social responsibilities are not neglected.
vi)             Enforcing discipline in lending to big borrowers.
vii)          Transfer of business to other PSBs or private sector banks in geographical areas where a particular bank is not successful.
M G Warrier, Mumbai


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