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Public sector bankers who often find themselves in a fix due to the dual regulation they face, that is, from the Reserve Bank of India (RBI) and the government which are often contradictory, will take heart from the statement made by none other than Prime Minister Narendra Modi and also Finance Minister Arun Jaitley.
"Banks would be run professionally, and there would be no interference. But accountability is essential… he (PM) is against political interference, but supports political intervention in the interest of the people," said a finance ministry statement.
The statements come in the backdrop of recommendations of the P J Nayak committee, a high-level panel appointed by RBI to improve corporate governance in banks.
The panel had recommended that the government should give up its control in public sector banks and cut its stakes below 51 per cent. It has also observed that dual regulation due to government's interference has crippled the functioning of these banks.
Modi said with public sector banks controlling 81 per cent of branches and 77 per cent of deposits, their net profit should improve from the current levels of 45 per cent.
To improve the functioning of state-run lenders, the PM has recommended that there should be common strengths in areas such as advertising and software that can be built upon.
Modi also asked banks to prioritise on loans to students. With non-performing assets rising in the education sector, banks have been cautious on lending to the education sector.
The PM also called for an end to lazy banking and said the parameters for success should be redefined. For instance, let them prioritise loans to enterprises, which will generate more employment," said the finance ministry release, quoting the prime minister.
Going ahead, the PM has also asked banks to set goals for the 75th Independence Day in 2022, adding that with the government's agenda of providing housing for all by 2022, this is an opportunity that banks should play on with 11 crore more houses required in the country.
Earlier in the day, finance minister Arun Jaitley said, "There are a series of steps that the government has taken and there is a need now for the banking system in India in a big way to finance infrastructure, infuse liquidity."
Slow demand in the corporate sector is one of the key reasons that had led to tepid credit offtake. As per RBI data, as of December 12, credit grew 10.8 per cent year-on-year, compared with 14.9 per cent during the corresponding period last year. This was the worst credit growth since 1997. The credit growth was only 5.2 per cent in the current financial year. (April-December).
Jaitley also expressed concerns over the high level of NPAs and said the levels were "unacceptable" in some cases. He also added that there was a need to get better talent into the system.
Separately, Jayant Sinha, the minister of state for finance, said he expected credit offtake to improve, as the economy improves and the interest rates come down.
"Credit offtake depends on multiple factors; it has to do with economy, interest rates, consumer demand. There is also an overhang off NPAs, which has been higher in the public sector than private sector. So, as the economy improves, the interest rates come down, which will certainly happen in the next few months. I am very hopeful and sure that credit offtake will improve."
After hiking interest rate thrice between September 2013 and January 2014, the central bank has maintained status quo since then, amid slowing economic growth. Many experts believe that interest rates should have come down to spur growth, as inflation has softened.
Retail inflation slowed to 4.5 per cent in November, the slowest rate recorded since the data series was first published in 2012.
On Friday, a finance ministry official had said the government could consider candidates from private sector to head large PSBs, if such recommendations were made by the search committee.
On the issue of fiscal consolidation, Sinha said the government is committed to fiscal consolidation and is confident about the road map and the target for achieving it.
"The numbers can always be achieved, and it was done so in the past through various mechanisms which I don't think anyone of us was comfortable with. It is really the quality of the numbers that is important," he said.
According to data released in December, the fiscal deficit during April-November was 98.9 per cent of the 2014-15 Budget Estimate.
Sinha also said it is important to ensure that the economy is set on a higher growth trajectory of 7-8 per cent, but it needs to be both sustainable and non-inflationary.
