Since 2000, while public sector banks? (PSB?s) assets have grown by 2.6 times to about $600 billion, they have reduced their workforce by about 3,00,000 employees in aggregate, suggesting a big improvement in productivity. Their profitability has increased from a return-on-assets of 0.47% to 0.79%, and their non-performing loans have come down from 7.9% to 0.94% during this period. They have also improved their capital adequacy ratio from 10.9% to 12%. Most of them have invested in technology and have an increasing proportion of their business being conducted on new core banking solution platforms, and as a group, they own 12,700 ATMs today. Many of them have undertaken major business restructuring exercises to improve their operations, and, as a segment, they are in better health today then they were seven years ago on almost all parameters.

So, you may ask then, why do I worry? The answer is that I worry about the political economy of their existence. I worry about the lust of a soft state at the time of elections. Our democracy is real and our representatives are alive to their short-term political compulsions over a more distant greater good. This is true everywhere in the world and not limited to India. Political representatives will reflect the point of view of their political constituents because this is the basis of their election. This is independent of the political party in power. The only difference in India is that they can more directly influence the actions of PSBs. What I mean is that with elections around the corner, the good financial figures of banks are tempting. Recently, the composition of bank boards has changed. The representation of minority shareholders has been reduced. Political nominees have increased. Representatives from the RBI have been pulled out and government directors are starting to abstain from the management committees of the boards. It is not that any of the members on a board are good or bad, but it is clear they represent different interests. These interests may not be aligned with the commercial operations of the banks.

The business cycle over the past seven years has been positive. Many sectors that had been struggling in 2000?steel, cement and sugar?are currently doing well. Many bank bad loans as a result are back in the black. But since last year, interest rates are rising on inflation concerns, the rupee is strengthening and capital inflows are so strong that economists worry about the ?Dutch disease? afflicting India. The Economist warns people not to buy property in Mumbai. And many commentators worry about the coming softness in the US economy. The intensely competitive Indian financial services market is set to see more competition. As one of the fastest growing markets, foreign interest is high and the RBI is set to open the sector further in 2009. In a sense, it is the wrong time for pillage. Yet, exhortations to increase lending to agriculture, exports and the financially-excluded at capped interest rates are increasing at a time that interest rates are rising. At the same time, corridor talk about bad loan settlement at the behest of influential political brokers is increasing. Is the second coming that Yeats? so poetically wrote about close at hand? Do we see the tiger crouching?

There are silver linings, though, that gives hope. The FM is now reviewing PSBs against the operating metrics achieved by the best private sector banks. The ministry is supporting progressive managements, and defending them against the excesses of the political class. And most rewarding of all?Class III unions in bank after bank are becoming the most progressive and demanding votaries of change. They must all be supported by the press to ensure that the taxpayer and minority shareholders are not looted by a political class that has access to the till. On guard, all.

?Janmejaya Sinha is managing director, Boston Consulting Group India. These are his personal views