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Journalism of Courage
Get serious about public sector bank reforms
Having said it is eager to go ahead with financial sector reform the government has now announced some steps on public sector banks which it intends to take shortly. Certainly there is no time to waste in licking these banks into shape. The risks of carrying on business in the present inefficient fashion are well known and have probably worsened during the debate about what to do with the tangle of non-performing assets, sick banks, overstaffing and huge levels of government borrowing.
But the air of purposefulness in the government on bank reforms could be deceptive. What has been announced amo-unts to enabling measures. It has not been made clear how far and fast the government will proceed on actual reforms once the path is clear. While the Verma committee report is being studied, the government seems keen to go ahead with what can only be described as a limited form of privatisation.
As long as the government remains the major shareholder and insists on setting political priorities for the banks, disinvestment will not change anything much. The levels of disinvestment the government has in mind should not be mistaken for privatisation or for greater autonomy for professional bank managers. A better way has to be found of erecting fire-walls between banks and the government. Otherwise, politicians and bureaucrats will carry on interfering as they have been for decades. As for the rest of the public sector banks which are in various degrees of trouble, the government will stillhave to nurse them to health.
This is where the Verma committee report comes in. Although the report is still at the discussion stage, the signs are that it may have to be watered down before it can be implemented. This would go against the express advice of the committee which underlined the importance of treating its recommendations as parts of a whole schemata.
In order to get serious about public sector bank reforms the government is going to have to think boldly and give up the habit of tinkering. Nor does it make sense to go ahead an inch at a time. For instance, why stretch out the exercise of developing a voluntary retirement scheme for banks? Other PSUs have workable VRS policies so the banks should be able to get theirs quickly. There is not an eternity of time to get started on trimming the fat. Unlike many countries in East Asia, India is in the fortunate position of knowing exactly where the weaknesses lie in the banking system and can start setting them right in an orderly fashion. Better doit now than during a crisis.
