‘Why do we need so many PSBs ?’

Richa Mishra | | Updated on: Dec 06, 2021

FICCI President Rashesh Shah | Photo Credit: Ramesh Sharma

It’s high time they were consolidated, says FICCI President

In the medium to long term, the question to ask is whether “do we need so many public sector banks (PSBs)”, say those within the government as well as industry.

FICCI President Rashesh Shah, who, along with his colleagues, met Finance Minister Arun Jaitley recently, said: “The government should have a few PSU banks, because they are an arm of implementing social programmes. But our suggestion to the government is to keep four or five large PSU banks and merge the rest into them, or privatise them.”

Shah, who is also Chairman and CEO, Edelweiss Financial Services, told BusinessLine : “We do believe that this (PNB fraud) kind of things should not happen as they are a big drag on the PSBs and the public exchequer.

“However, we have to commend the agencies that have attached the properties, and the government, which has moved with a lot of alacrity in this. But the idea is to make some example out of this so that this is not repeated.”

Besides, the time has come in India for a few people to take responsibility for this kind of a financial fraud, and identify how, where and why the lapses happened, he said. “One has to go after the companies and people who have committed the fraud, but there is some moral authority that should be taken because it has been going on for so many years,” he added.

Impact on reputation

 

Asked about the impact it had had on the reputation of India Inc, he said: “A large part of corporate India is honest and plays by the rules. It is not like it is being played out — that nobody pays back the loans. The fact is that 95 per cent of the borrowers are servicing and repaying the loans.”

Shah went on to say that “there are a few stray cases and quick action has to be taken...The Insolvency and Bankruptcy Code is a step in the right direction. But, in the immediate term, action, responsibility, strengthening oversight and governance are required.”

Making a case for privatisation and consolidation in the sector, he said around 14 or 15 banks in the PSU universe can be sold or merged.

“Now with so many banks, maintaining oversight and governance gets diluted, and this is also a big drag on the exchequer, how long can you keep on recapitalising the banks? The moral hazard is very high,” he pointed out.

Borrowing fears

Asked if there was a fear emerging that banks will stop lending, he said: “It should not happen. They might make the process more cumbersome — which is already happening after the NPA crisis.

“The requirements that banks express while disbursing loans is only going up and that is not a good thing. After this the access to credit will become harder and more cumbersome. The idea is to go after the defaulters and not penalise the 95 per cent honest creditors who are repaying on time.”

But will there be some fear psychosis that even the smallest borrower will be hunted down?

“This is what we fear, we need to be very cognisant that there are a few bad apples and the banks should get them out of the system.

“We think it should not paralyse the bank as it will affect the economy,” he said, adding that “the government is aware of this and they also feel the clean up will better the health, so we are going through a clean-up phase and that too is costing a lot of money.”

Published on February 26, 2018
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