As the fraud at the Punjab National Bank continues to unravel in which diamond czar Nirav Modi allegedly colluded with a former bank employee to obtain ‘fake’ Letter of Understanding (LoU) worth Rs 11,345 crore, the demand for privatisation of banks in India is gathering steam. And the latest participant in endorsing the idea is chairman of the Godrej Group Adi Godrej.
In an interview with ET Now, Adi Godrej said that he supports the call for privatisation of banks as private banks have less or no scams. On PNB fraud, he extended his support for the Reserve Bank of India, saying that there was no lapse on the part of the central bank. He also said that the auditors have limited abilities and they should have better control to prevent scams.
He came down heavily on corporates involved in any kind of collusion saying that he can’t defend them. The debate over bank privatisation sparked when industry body Assocham, in the wake of the PNB Fraud, on February 18 urged the government to reduce its stake to less than 50% in the banks. Assocham said that the banks should be allowed to work on the lines of private sector lenders with a full sense of accountability and with the interest of shareholders and depositors at heart.
A day later, FICCI, too, endorsed the idea, saying that for a sustainable socio-economic development, the robust healthy financial sector is needed and so, given the continuous pressure on the government finances on account of the weak performance of the banks, the government should consider privatisation of Public Sector Banks.
It added that government’s massive Rs 2.11 lakh crore bank recapitalisation “will not be effective unless the inherent issues related to governance are resolved.”
However, the All-India Bank Employees’ Association opposed the demand asking why so many private banks are being shut down or merged if they are so efficient. The PNB fraud, which the centre of this entire debate, is, in fact, a small part of the entire banking crisis.
India’s PSBs are saddled with Rs 9.46 lakh crore of bad loans and it is expected to grow further. In the past few months, both the government and the RBI have been trying to clean up the books of PSBs. The government announced bank recapitalisation plan and added a clause in the Insolvency and Bankruptcy Code (IBC) to bar wilful defaulters, defaulting promoters and related persons from bidding during insolvency resolution.
The RBI recently ordered a complete overhaul of stressed asset management, subsuming 28 existing schemes under a uniform and strict 180-day resolution process for big defaults.