Overhauling Public Sector Banks in India

The Government of India is mulling various ideas to clean up the mess in Banking Sector. Although is not new or unique in our country. NPA are prevalent across the world. China is facing huge NPAs, USA  Banks have to write off huge amounts every year for bad accounts. NPAs are integral part of the banking sector. Uniqueness in our country is handling of such issues. Media trial, government actions on wake up, public perception, Legal angles and social factors make bank defaults unique subject in our country. The compulsion of action in such cases once it comes into limelight forces the authorities to act in hasty manner and mostly in wrong and undesirable manner.

Suddenly authorities wake up and decide one fine day to clean up the books. Was it known that books are not clean? If the books are really not clean since decades then give it some time and clean up in such a manner that banks do not loose further. Banks decide to propagate the defaulters, black list them, publish their names and photos, behaving arrogantly with the borrower mainly to small borrower who is genuinely defaulter, Abusing in meetings and threatening the borrower like a street gunda will not help the banks in recovering the dues. Please keep in mind that you, the bankers, are also not clean and honest. Your greed to become the Chairman, Executive Directors, Directors, various promotions were not without any self interest. If Pandora box is opened, these bankers may also face the heat. If recovery methods are not improved, public money will go in drain.

There was a serious talk going on about creating a new Bad Bank to take care of the NPA accounts, but still nothing has come out and may take some more time. Recently, the news is about merging These PSBs into 8-10 Banks. I am strongly against merging in this manner. Reducing the number of PSBs without any change will only be a window dressing. Nothing else will change. We should rather thing on different lines. We desperately need sector specific banks. There is no need to have 10 jack of all banks instead of 10 specialised banks. Sector specific banks will be better equipped with knowledge of market scenario, macro and micro developments, focussed approach and sector specific requirement. Presently we use same stick and parameters for all the sectors which has caused huge damage to banking sector. Also we need Banks for start-ups, Bad accounts, Equity support, long term investments etc. Simply merging or demerging will not at all help.

CP Jain, FCA