Old wine, new bottle

The Centre’s plan to revive public sector banks is more an attempt to boost sagging public confidence in them rather than a radical effort at reform. It hardly needs reiterating that it is important to strengthen corporate governance in PSBs, infuse some much-needed professionalism, bring about greater transparency and accountability, and ultimately give the government, as the owner or majority shareholder in these banks, a better return on its investments. But the question is whether the seven-point plan, dubbed ‘Indradhanush’, although good on paper, will be implemented as planned.

This is where the Centre’s track record — regardless of the political administration in power — fails to inspire confidence. After all, every measure outlined in the plan has been articulated by the government before. Recapitalising PSU banks, professionalising bank managements, creating a Bank Boards Bureau for board-level appointments, empowering PSB managements and improving corporate governance and accountability are familiar statements of intent. The key is action, which has been largely missing until now. Take recapitalisation — PSBs need an additional ₹2 lakh crore as capital over the next three financial years in order to meet revised Basel III norms. However, the plan outlines infusion of only ₹70,000 crore from the government, with banks expected to raise ₹1,10,000 crore from the market, with the balance supposed to come from internal accruals. PSBs account for 70 per cent of bank deposits as well as the majority of accounts opened under the Jan Dhan Yojana; therefore, a lack of adequate capitalisation will pose a significant systemic risk and threaten financial inclusion plans. That being the case, expecting PSBs to raise ₹1,30,000 crore, given their stressed balance sheets — PSB profits declined 21 per cent overall in the June quarter — is unrealistic. On the governance front, many PSBs lack even a single independent director. After stating its intent to throw open leadership positions in PSBs to private sector talent, the Centre has retreated and said future appointments will be internal.

On efficiency and accountability, while the new performance-based metrics are welcome, the Centre has already backed down on its earlier stand of recapitalising only those banks that have met performance metrics. No attempt has been made to lay down stronger performance-linked criteria for bank staff. PSB unions, in fact, have wrested a 15 per cent hike in wages recently, despite mounting bad loans and plunging profits. The elephant in the room is independence. Empowering PSB managers is key to ensuring better performance. Every administration has committed to empowering public sector banks, but has observed it more in the breach. Ultimately, it will be actions, not intentions, that will count.