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PSB autonomy:Time for government to walk the talk

It is now up to the government to remove both 'state-owned' and 'state-run' tags

Manojit Saha Mumbai
Last Updated : Jan 06 2015 | 10:04 AM IST
Consider this circular dated July 16, 2012, from the finance ministry to all public sector banks (PSBs): “In order to bring about a level playing field, banks may consider uniform card rates for bulk deposits for different maturities at least up  to one year across banks...all concerned may also be appropriately advised that deviation from the above instructions may be treated as violation of instructions of the government.” 

Not only does such a statement defeat the spirit of free competition and be viewed as cartelization but it is also injurious to depositors’ interests. 

Such a circular is not a one-off incident. Between October 2012 and January 2014, the finance ministry issued as many as 82 circulars to PSB chiefs. 

This only shows that in India, public sector banks are not only owned by the government but also run by it. 

Dual regulation, meaning government diktats in addition to Reserve Bank of India’s regulation, has crippled the functioning of the state-owned banks. Private sector banks do not face any such constraint. 

In this light, it is a welcome assurance from both Prime Minister Narendra Modi and Finance Minister Arun Jaitley that there will be zero interference in the functioning of PSBs. 

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But the million dollar question is how early we can expect the change? 

The first step towards autonomy of public sector banks is setting up a bank investment company, in line with the recommendations of the PJ Nayak committee – a proposal that was backed by most bankers during a two-day retreat in Pune last week. This will remove the state-owned status and banks will be state-linked as the holding company will hold the shares. Shares will not be held in the name of President of India, as is the current practice. 

The Nayak committee had also proposed all the present Acts (like Bank Nationalization Act, SBI Act etc) be repealed and all banks be incorporated under Companies Act. The Government's powers in relation to the governance of banks should also be transferred to BIC. 

The entire transition path to empower the bank boards has already been chalked out by the Nayak committee, which also provides a draft scheme amending the existing laws. 

All the government now needs to act before it’s too late.
 

(Manojit Saha is Banking Editor at Business Standard)

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First Published: Jan 06 2015 | 9:58 AM IST

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