Privatisation of public sector banks is not the answer to address the current problems in the sector, according to some industry figures, who say PSBs need empowered Boards with freedom to operate efficiently in an environment free from political interference.
Privatisation of public sector banks is not the answer to address the current problems in the sector, according to some industry figures, who say PSBs need empowered Boards with freedom to operate efficiently in an environment free from political interference. Former Chief Financial Officer of Infosys Ltd, V Balakrishnan noted that the Global Trust Bank was a private bank when it failed, amid a debate on the functioning of PSBs and whether there is a case for privatising them. “Also, in a country where the unbanked population is still high, you need public sector banks to both increase the reach as well as meet social objectives,” he told PTI. Balakrishnan said India’s savings rate also is very high and PSBs provide the required safety net and comfort for savers.
The Banks Bureau Board, he said, should be made really effective in selecting the CEO, their compensation, their performance evaluation and also appointment of independent board members. “The banks should be completely freed from political interference,” Balakrishnan stressed. “At the end of the day, it is the proper institutional mechanism along with strict regulatory mechanism and regulatory oversight that will determine the success of PSU banks.” But another former CFO of Infosys, T V Mohandas Pai, concurred with the view of former NITI Aayog vice chairman Arvind Panagariya, who has made a strong case for privatisation of PSBs with the exception of SBI.
“Yes, I agree (with Panagariya).. They (PSBs) need their freedom to operate. Right now the problem is the owner who does not let them work efficiently,” Pai said. Meanwhile, a retired Chairman and MD of a large PSB suggested empowering Boards of PSBs, allowing it to choose leadership and also recruit good human resource to significantly improve the functioning of the sector. He said in a fast-changing world, PSBs need to internalise a lot of technologies and they need to have an agile and nimble structure.
“You have to really empower the Boards because they sit with banks with greater time frequency. They should be given the freedom to decide on the leadership and also the strategy,” said this former top Banker on condition of anonymity. Different banks are at different stages of risk management, and the Finance Ministry’s “cookie-cutter” approach that “every bank is like this” does not really address the issues, he said. What is needed is the empowerment of the boards and bringing in right practices, risk management processes, monitoring and right mitigation measures, he noted.
“Board should decide leadership (Chairman, Executive Director)…how to recruit, who are the people who should be there. They need to decide, instead of the Ministry giving you directions all the time; again for the Ministry, it’s not humanly possible. They (Finance Ministry) will always try to have a cookie-cutter approach”, he added. “Today, the Finance Ministry conducts 45-minute interview in order to determine who should lead the bank for the next three years.. Somebody will speak very well and that person may be only talk and no execution. You can never make out (in a short interview),” the former official said.