Government should focus on making the banking system stronger and give them independence to find their own solutions instead of stressing on mergers, industry body Assocham said in a report released here today.
“Mergers or consolidation of the public sector banks is certainly no answer to the present crisis, which can only be resolved by professionalising these banks with the government keeping an arm’s length,” Assocham President Sunil Kanoria said while presenting the report.
The body has brought out the paper on ‘Convergence, Not Consolidation Answer for Public Sector Banks’ which suggests that there are no quick fixes for grave problems in the public sector banking.
“Overall the economy is doing good, government has done a lot in the last two years, but investment specially in the private sector is not picking up.
The solution to the problem lies differently. Instead of merging of the PSBs, the focus should be to make them stronger and larger,” Kanoria said.
The report says that the government should at the present juncture look at strengthening the banking system.
With some high profile borrowers getting into litigation and facing criminal probes, the public discourse puts additional pressure on the government, to find some quick fixes for the NPA (non performing assets) ridden banks, which find themselves terribly constrained to improve lending with the credit growth well below 10 per cent, the report said.
At present, public sector banks are grappling with bad loans situation running at about Rs 4.76 lakh crore (2015-16) in the form of gross NPAs.
The government has recently cleared the proposal of merging five associate banks of SBI, alongside a newer Bharatiya Mahila Bank, with the country largest lender.
“If size of the banks had a relationship with the health of the financial sector, the Chinese banks would have been the healthiest lot. But the biggest concern before the global financial community today is the health of the Chinese banks,” said D S Rawat, Secretary General Assocham.
Kanoria said Reserve Bank has introduced a lot many schemes in the last two years to clean up the banking sector woes, but most of them have not worked.
“Rather than going with the scripted mechanism, give banks the autonomy, empower their boards, let them make their own decisions. Find a case by case solution than to have a scripted solution,” he added.
Unlike the present situation where financial services division in Finance Ministry is virtually the master of the PSBs, the level of the government interface with the banks should be well defined and be done only through the Banks Board Bureau, comprising people of eminence, integrity and domain expertise, the report said.