 "One has to be extremely careful before taking a drastic step: Shubhalakshmi Panse")
Reserve Bank of India Governor Raghuram Rajan had constituted a committee, headed by former Axis Bank chairman P J Nayak, to review governance issues in public sector banks.
Shubhalakshmi Panse, member of the Nayak committee & former CMD of Allahabad Bank, explains to Manojit Saha why the formation of an bank investment company is crucial for public sector bank reforms. Edited excerpts:
How crucial is the setting up of a bank investment company (BIC) in the backdrop of banking reforms? Given that BIC will need lawmakers' approval to bring government stake below 50 per cent, do you think BIC can ever be a reality?
The government has taken some steps to address governance issues in public sector banks. Do you think these initiatives will make a change in the way banks function?
After accepting the P J Nayak committee recommendations, the government has taken a number of steps, including bifurcation of the post of CMD (chairman and managing director), selection of non-executive chairman from various fields, selection of managing directors and CEOs for the top two banks from private sector banks, reduction of government share to 52 per cent, etc., The next step would be setting up of the Bank Investment Company.
How important is the formation of the bank boards bureau (BBB) in the entire process of reforms?
The BBB will select not only the chairman and managing director, but also professional directors. BBB will also be guiding the banks to raise capital since some of the members would be investment bankers. That is an important function because after the government decides to reduce its share to 52 per cent, banks will have to raise funds from the market and the knowledge of BBB members will definitely be an asset.
The committee had recommended all members of the BBB could be former bankers and that the government and Reserve Bank of India (RBI) distance themselves from the selection process. That has not happened as the BBB will have two government representatives and one from RBI, apart from three independent members...
Yes, the committee did suggest that the government and RBI should distance themselves from the BBB and appointments. But that has not happened. In my opinion, before taking this path-breaking decision, the government would like to gain some confidence about the modified selection process and maybe then take a call about distancing itself from the selection process. All said and done, the government still holds at least 52 per cent in the banks. Once that comes down, BBB can become independent of the government. The government, once it gains confidence in BBB, say, in a year's time, may distance itself from BBB. We must remember that the entire system in the PSBs (public sector banks) is used to working in a specific manner and if a drastic change is brought about, this might lead to some confusion. After all, public sector banks capture 70 per cent of the market share. One has to be extremely careful before taking any drastic step. So, this transition has to take place in a phased manner, in a smooth way without jeopardising the safety of public money.
But the government is yet to commit to bringing down its stake below 50 per cent...
Yes, the issue of bringing down government stake below 50 per cent has not been envisaged. But we should realise, for the government to take a such step will take time. To set up BIC, legislative changes are required. Some of the existing Acts have to be repealed.
Broadly, most of the recommendations have been implemented. The government has said they will hold 52 per cent in banks. We expect the government to bring down its stake. Maybe in the next three years we will see a change in thinking. By the time BIC comes into existence, the government could take some more time to change its stance in distancing itself from BBB and establishing BIC.
There is one thing we must remember - for the government to take the final step, it should have the confidence that the money of the general public is in safe hands.
Shubhalakshmi Panse, member of the Nayak committee & former CMD of Allahabad Bank, explains to Manojit Saha why the formation of an bank investment company is crucial for public sector bank reforms. Edited excerpts:
How crucial is the setting up of a bank investment company (BIC) in the backdrop of banking reforms? Given that BIC will need lawmakers' approval to bring government stake below 50 per cent, do you think BIC can ever be a reality?
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The establishment of BIC entails amendments in a number of legislations. Hence, the government will take some time to implement it. A number of announcements have been made by the government in the direction of establishing BIC. However, the government is yet to commit it will bring its stake in public sector banks below 50 per cent. That is going to be a path-breaking step and it will take some time for the government to bring about this change.
The government has taken some steps to address governance issues in public sector banks. Do you think these initiatives will make a change in the way banks function?
After accepting the P J Nayak committee recommendations, the government has taken a number of steps, including bifurcation of the post of CMD (chairman and managing director), selection of non-executive chairman from various fields, selection of managing directors and CEOs for the top two banks from private sector banks, reduction of government share to 52 per cent, etc., The next step would be setting up of the Bank Investment Company.
How important is the formation of the bank boards bureau (BBB) in the entire process of reforms?
The BBB will select not only the chairman and managing director, but also professional directors. BBB will also be guiding the banks to raise capital since some of the members would be investment bankers. That is an important function because after the government decides to reduce its share to 52 per cent, banks will have to raise funds from the market and the knowledge of BBB members will definitely be an asset.
The committee had recommended all members of the BBB could be former bankers and that the government and Reserve Bank of India (RBI) distance themselves from the selection process. That has not happened as the BBB will have two government representatives and one from RBI, apart from three independent members...
Yes, the committee did suggest that the government and RBI should distance themselves from the BBB and appointments. But that has not happened. In my opinion, before taking this path-breaking decision, the government would like to gain some confidence about the modified selection process and maybe then take a call about distancing itself from the selection process. All said and done, the government still holds at least 52 per cent in the banks. Once that comes down, BBB can become independent of the government. The government, once it gains confidence in BBB, say, in a year's time, may distance itself from BBB. We must remember that the entire system in the PSBs (public sector banks) is used to working in a specific manner and if a drastic change is brought about, this might lead to some confusion. After all, public sector banks capture 70 per cent of the market share. One has to be extremely careful before taking any drastic step. So, this transition has to take place in a phased manner, in a smooth way without jeopardising the safety of public money.
But the government is yet to commit to bringing down its stake below 50 per cent...
Yes, the issue of bringing down government stake below 50 per cent has not been envisaged. But we should realise, for the government to take a such step will take time. To set up BIC, legislative changes are required. Some of the existing Acts have to be repealed.
Broadly, most of the recommendations have been implemented. The government has said they will hold 52 per cent in banks. We expect the government to bring down its stake. Maybe in the next three years we will see a change in thinking. By the time BIC comes into existence, the government could take some more time to change its stance in distancing itself from BBB and establishing BIC.
There is one thing we must remember - for the government to take the final step, it should have the confidence that the money of the general public is in safe hands.