In an interview with CNBC-TV18's Ekta Batra, former finance secretary S Narayan, former SBI MD Diwakar Gupta and renowned consultant Ashvin Parekh discussed the outcome of the Gyan Sangam where senior banking executives, central bankers and top government bureaucrats and ministers, including Prime Minister Narendra Modi met to discuss the course ahead for the public banking sector.
Excerpts from the conversation.
Q: One of the key points is that the Prime Minister said that the government will not interfere in the internal workings of public sector undertaking (PSU) banks. How would you read that?
Narayan: This is a very good suggestion because if you do recall there have been a lot of reports in the media which say that the bank's boards are often constrained in taking certain decisions because of government policies on infrastructure lending, power sector lending etc and there is enough evidence to show that the kind of loans that they have been making to different entities are very different, I would say, are not as much as scrutinised as much as the private sector banks are doing. Why is the non-performing asset (NPAs) of private sector banks so much lower.
Therefore this suggestion of leaving the banks to fend for themselves commercially is very good. We have to see how it plays itself out.
Q: There are lot of statements which have come out. Do you think that the Gyan Sabha was more of motherhood statements or something and that eventually execution would be the key important thing because there is nothing in terms of finalisation on timeline etc?
Narayan: Absolutely, often the banks are constrained by the different representatives in the board. There are worker representatives, government representative, shareholder representatives, decision making becomes extremely difficult. So if the banks are given a free hand, if you take this though further one of the very important things would be to reconstitute the board to consist of completely professional people. I hope they do that and that would be the first major step to ensure that the banks functions as commercial entity.
Q: There was a statement saying that the banks in the long run should think of a bank investment company and eventually government ownership as per my understanding as of now should be eventually brought down to 51 percent minimum holding. In your sense do you think that the execution of a bank investment company would be fruitful and how long would it take according to you?
Narayan: I haven't gone through this statement carefully but I am a little cautious because the investment company part which is development finance institution path is one that we had gone through in the 50s, 60s and 70s and found that they have not been useful. Whether it is IDBI or IFC or even the ICICI whole we have walked away from that in the 90s. So, I don't want us to get back into the same kind of a mould of development finance institutions.
Q: Your thoughts in terms of the Gyan Sangam and the takeaways if you have managed to hear the press conference?
Gupta: I did not hear the press conference but I got some snippets. I think the focus on saying that there should be consolidation, is good and the fact that they are saying they will go about it selectively, is also good because practically you cannot be doing it all in one go.
Q: Do you think that we will see consolidation anytime soon in the banking space because the statement clearly said that suggestions are that the banks' boards should decide on consolidation. So it would eventually be the onus of the banks themselves and not the government? Do you think they would take the initiative to do that?
Gupta: I do not think so. The fact is that you need fresher from outside for change to happen because if change were to happen through an emancipated than knowledgeable process, the banks would not be in the shape in which they are today.
Q: The other key point was that the Prime Minister said that they will not interfere in the internal working of public sector undertaking (PSU) banks? Is that a very important takeaway that maybe PSU banks can decide on lending to certain sectors which was a priority or something which was emphasised by the government earlier?
Gupta: As a statement it's a good statement. The fact is that banks should not be interfered with in their manner of functioning but this perception is also exaggerating that there is so much interference in the way PSU banks are. There are structural problems why PSU banks are not efficient and those structural problems have to do with the fact that there is government ownership, so there is government accountability, accountability prevents management from taking good decision because they do not want backlash of that later on and so on.
I think if not so much a matter of interference as of their being a professional body which selects boards and which overseas policy and implementation. I think that is what the PJ Nayak Committee report has also said. So there is a structure that they have enunciated that structure would be attempts to say that from a careerist you must move to a professional for managing a professional entity and that is important.
Q: Your sense in terms of what is the most feasible recommendation that we could see execution of in this year?
Parekh: I will go by some of the very first few sentences with which the note started. The fact that there was a promise from the government that the interference or intervention from the government will be at the minimum that is a very high note. That is a very constructive positive note with which sort of Gyan Sangam could actually summarise its discussions. Taking from what Mr Gupta just said capital not just in terms of healthy, in terms of sheer numbers is going to be a major challenge and we must get some more detail out of the deliberations.
Each year we are talking about Rs 80,000 – 90,000 crore of capital required for the public sector banking. Where is it going to come from? It is something that must come through as a part of these deliberations. Otherwise, like so many other such conclaves which have happened in the past you end up discussing issues but you don't really come out with solutions or answers. So that is one important point that I thought, I was missing it.
But the fact that from the government's point of view the government will not interfere or reduce its intervention is a very healthy note.
Q: When you say that no political interference in the functioning of a bank, what would it entail?
Parekh: The first and the foremost is therefore that if let's say, Dr Nayak committee report is implemented in its true spirit then perhaps we may find both the recommendations are major ones. First is the government taking a hands off by transferring the investment into a BICS it was mentioned in the report, a holding company. Then again appointment of the leaders i.e. the director, CEO and EDs of the banks through a professional BBB is what the recommendation was.
If these two recommendations are well implemented then the control that the government tries to keep through the board at this point in time by appointing so many members on the board and then they are after the kind of outcome that we have seen or the performance of the public sector whether it is in terms of NPAs or in terms of its working. It could be much better if these things are formalised in a proper manner.
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