Chief economic adviser Arvind Subramanian on Saturday said the country has failed to recognise the importance of regulation in the banking industry. Though the banking industry has started to recognise the stressed assets, with a resolution process through NCLT, aptly backed by recapitalisation, the country has failed to recognise the aspect of regulation and the role of a regulator, he said. Speaking at an event in Chennai, he said to avoid such scams in the future, drastic changes in the ownership structure of public sector banks were required. He strongly advocated private sector participation, which, according to him, should be complemented with tightened scrutiny from the banking regulator. Subramanian said the country has to take lessons from the series of events that have unfolded over the past weeks involving the banking industry, especially involving public sector banks.
He was referring to Bank of Baroda shutting down its South African operations, State Bank of India being forced to recognise and recapitalise a lot more than what it had planned earlier, and the latest PNB episode. “Two questions arise regarding the way forward for the banking industry: If not now, when? Second, if not this, what?” he said, emphasising the need for private sector participation. He questioned that in a situation where internal controls of a bank break down for some reasons, what about the external controls being exercised by the regulator and the supervisor? “I am not saying that all banks should be, but we should explore the possibility of more private sector participation in public sector banks,” he said.
Decision making in Indian government establishments is paralysed by the fear of the four Cs — courts, CBI, CVC and CAG, he said. He said ever since he took over as chief economic advisor, the four Rs (Recognition, Resolution, Recapitalisation and Reforms in the banking system) had been discussed and executed, but the country failed to recognise the fifth R, which is regulation of the banking system,he said.