Hinting that public sector banks have been pressured by the government into sanctioning several loans in the past, former Sebi chairman M Damodaran said telephone calls from Delhi to Bombay over the years have been at the root of the problem at public sector banks (PSBs). “People in Bombay have unquestionably responded to the direction from Delhi,” he said. Public sector banks face an issue of ownership, he said, adding that the answer to its woes does not lie in privatisation.
“I am not for a moment arguing that we should privatise everything, because we have very recent evidence that privatisation is not a synonym for honesty or efficiency or avoidance of conflict of interest,” Damodaran said at the 14th convocation of National Institute of Bank Management (NIBM). He added that a country as heterogeneous as India, needs a very strong public sector. “There are well-intentioned people and I don’t discredit their intelligence. There is a simple difference between ownership and management,” he said, adding that when ownership equals management, then one starts looking over the shoulders of bank management to see the correctness of every transaction.
When ownership translates into transactional supervision, which one is not tasked with, then there is a problem of ownership, he argued. “We need a healthy public sector. Don’t think merit lies in privatisation but you need to fix the public sector,” he said.