The Hindu Business Line : PSU banks are still caged

THE BANK AUTONOMY package for public sector banks now decided on by the Government will not alter much the status of public sector banks as caged birds. To an extent, the Government has stepped aside but the chief executives of government banks are aware the package does not quite place them on par with private sector banks. The doors that appear to have now opened to let them fly never restrained them in the first place. They have been tied down by rigidities in the system that went beyond apparent restraints. A Government okay is perhaps not needed now if PSU banks want to acquire, enter or exit businesses, set up overseas branches or merge unviable branches. But then in the last few years, public sector banks have in any case been merging unviable branches in the urban areas and setting up satellite branches in the rural areas with the RBI's permission. The RBI has a policy in place though it is hard to close down rural branches without the nod of the district administration. A few big banks have cut down on subsidiaries by merging them and the central bank is not keen on banks taking up businesses alien to those set down in the Banking Regulation Act.

Importantly, most banks have got into insurance, home finance and the rest, leaving little scope for new forays. Does the package provide for the automatic merger of, say, Union Bank of India with Bank of India, or Indian Bank with Indian Overseas Bank, as the Bank Nationalisation Acts stipulate the government prepare a paper on the subject and present it to Parliament for approval? Similarly, extant laws do not provide for merger of a regional rural bank with another, nor can RRBs be merged with sponsor banks. Will this change? Bankers are not sure. Opening of foreign branches by Indian banks needs the nod of the RBI and the foreign regulator and is also subject to the reciprocal provision to allow foreign banks to open branches in India. Banks can now recruit quality personnel at above unionised salaries without rushing to New Delhi, but will bank unions keep quiet? Not being pestered by union activity, private banks are poaching into government banks with mind-blowing pay-packets while salaries are fixed industry-wise for nationalised banks. A critical difference can be made if bank boards have the latitude to work out a pay structure that their balance sheets would allow and not what the unions insist on. That could imply SBI paying more than, say, Dena Bank, which will happen only when the new wage agreement expires.

It is hard to believe the earnings of chairmen of public sector banks being on par with the private sector as then their pay will top those of the RBI governor and well-placed secretaries in New Delhi. The package has not done away with the CVC, whose shadow still haunts every credit officer in a government bank. Nor has the package sorted out the issue of dual control between the RBI and the Banking Division in the Finance Ministry, which by any measure needs to be wound up. The way out is to free the caged birds by the government getting out of banking with the RBI alone supervising the industry, though that may not happen for a long, long time.

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