One of the remarkable aspects about the March quarter results was the standout performance of public sector banks. On the face of it, there isn’t much to criticise. They are growing as fast as private banks with profitability at an all-time high. Non-performing assets is no more a headache as it was until FY20, and is beginning to look similar to that of private banks. Retail and small and medium businesses focus areas. Yet, why are they being viewed and valued differently from private banks?

This is a question that the government, as a majority stakeholder in PSU banks, should ask and the time to ponder over this is now. Barring State Bank of India and a much-smaller Bank of Maharashtra, the rest trade far below their book values. Despite pouring over ₹3 trillion into these banks since FY16 for a clean up, investors at best feel that only ₹80 out of ₹100 is the real value of these banks. There are banks with far lower valuations, indicating that the haircuts PSBs may have to take could be far deeper.

So how can valuations improve? There are two parts to it. One is arithmetic and the second is the quality of these numbers, or the perception around the financials. The first part has long been taken care of.

And yet, if valuations are supremely depressed, it’s important that the boards of PSU banks and, ultimately the government, work on boosting the perception of these banks. That calls for customer-centric banking practices, far beyond providing digital apps or phone banking.

Stronger boards and governance standards and, to some extent continuance and ownership of the core executive team and their ability to execute independently — particularly with respect to taking credit calls — are equally important. To an extent, with IDBI Bank, the government tried this along with LIC. Likewise, roping in a foreign banker for a four-year tenure at Bank of Baroda helped reset the goals and eventually improve the image of the bank. Yet, these are just jobs half done.

With other banks, the government cannot afford to wait another five years and then decide on the course of action, especially if it’s focussed on its privatisation agenda. The need of hour is to demonstrate that governance at PSBs can be good as the private sector, and this is long-term project. But with much effort poured into the sector, if the government wants a bang for its bucks, it will have to walk an unconventional path to get its dues.