Rs 114-bn PNB scam: CII for privatisation of public sector banks

The government should announce a road map to bring down its stake in public sector banks (PSBs) to 33 per cent in three to four years, said Confederation of Indian Industry (CII) president Shobana Kamineni. Before privatisation, she said the government should reduce the stake in PSBs to 52 per cent at the earliest, as the holding would rise after recapitalisation.

“It is time for the government to consider consolidation of PSBs and develop a few strong banks that adhere to best standards in governance, accountability and transparency. Currently, the shareholdings of government have been rising with bank recapitalisation attempts, and these should be brought down to 52 per cent at the earliest, as intended by the government. A roadmap could be announced for bringing Government stake to 33 per cent in three to four years,” she said, referring to the Rs 114-billion fraud at Punjab National Bank. The statement came a day after finance minister Arun Jaitley  said privatisation of PSBs would be tough, saying the move might not find  political consensus.

“This (privatisation) involves a large political consensus. Also, that involves an amendment to the law (Banking Regulation Act), as well as amendment in the political consensus. My impression is that Indian political opinion may not find favour with this idea itself. It’s a very challenging decision,” he had said. The secretary general of the Associated Chambers of Commerce of India (Assocham), D S Rawat, said while long-term solutions like privatisation of banks can be implemented, the need of the hour was to rally around honest bank officers and honest business entities. “Let one or a few black sheep not derail our financial system, which is resilient enough to withstand these kinds of shocks. Though, ideally, such jolts are better avoided and averted through systemic reforms.” India Inc cautioned that lending to companies should not be choked now, especially when credit growth was about to recover and the economy set to grow at a higher pace. Industry called for better control systems to check financial frauds. Apart from lowering stake in PSBs to 33 per cent gradually, the government should also adopt a strategy for tackling financial frauds, via better monitoring and supervision, and improving corporate governance standards, CII said. “The government, regulators and industry must act fast to address systemic risks in the financial sector. The three key solutions for the banking sector are better management and operational efficiencies, use of technology such as block chain and big data analytics, and lowering government shareholding in public sector banks,” said a statement.

The CII president said financial malfeasance perpetrated by unethical business entities and corrupt officials should not lead to a situation where funds to industry get choked. Citing January export data, which showed a deceleration in growth even as the global economy was on an uptick, Assocham said the domestic economy would require higher imports. “Thus, both imports and exports are key to our economy. It is time to correct the systems which had allowed the misuse and move on with the task of achieving higher economic growth,” Assocham said.

The industry said there was a need to strengthen internal systems of enterprises and adherence to regulatory norms in letter and spirit. "While we need to ensure safe and sound functioning of the system and not allow loopholes like those in the PNB system of money or guarantee transfer, let banks not overreact and hit the trade and industry," Assocham said.

As India is moving towards ease of doing business, the actions of a few fraudulent actors need not translate into more stringent regulatory norms for all when corporate governance structures are strictly followed, emphasised CII.