Opinion 7-point something

By all accounts, the Narendra Modi government is adept at coining catchy slogans for its various economic and other public programmes. The latest is Indradhanush, a seven-point strategy to revamp state-run banks weighed

down by bad loans and other operational issues. The government’s new blueprint envisages the allocation of Rs 20,000 crore in capital to help clean up the balance sheets of these banks this fiscal; a Bank Boards Bureau that will oversee appointments of senior personnel; appointments of CEOs and MDs from the private sector and non-executive chairmen in five banks; an Employees Stock Option Plan for senior management; greater flexibility in hiring; improved governance norms; and monitoring.

The government has indicated that banks could also take the initiative for consolidation while terming the proposed revamp as the most comprehensive plan since bank nationalisation in 1969. Some of the moves outlined by the government are welcome, even though they have been too long in the making, given that the level of bad loans had risen to 4.6 per cent of outstanding loans at the end of FY15 and is poised to go up further, with an economic rebound still elusive.

To be fair, this has been a legacy issue on which the previous UPA government ought to be shouldering much of the blame for the gross neglect of its own lenders. Yet, it does appear that the government has settled for sub optimal solutions. Legislative constraints may well be a challenge, including when it comes to creating a bank holding company recommended by the P. J. Nayak committee on governance in state-run banks. But the halfway solution of a bank bureau, with three members from the government, is hardly likely to boost transparncy.

Similarly,the success of the experiment of bringing on board private sector executives as CEOs or professionals as

part-time chairmen will hinge greatly on the terms of engagement, including operational flexibility. So far, the government’s choice of nominees to the boards of many institutions hasn’t inspired confidence, making it all the more incumbent on it to appoint to bank boards top-notch professionals with a good track record and integrity, as well as to empower them adequately to ensure that these banks become more competitive.

It should not be the case this time around, too, that an infusion of capital to banks — which is a charge on public resources — fails to lead to significant operational and governance changes. That’s why it is important to ensure the quality of those chosen to steer the banks. This should go hand in hand with a sectoral package and deeper rate

cuts, which helped the turnaround of banks 15 years ago, besides the corporatisation of listed banks.