"Worst-case scenario for the banking crisis" (July 11) makes a case for hastening the process of "privatisation" of India's banking system. There are similarities between the way in which public sector mutual fund UTI was handled when private mutual funds found its presence uncomfortable and the approach of analysts like Ajay Shah to the public sector banks' (PSBs) predicament. It is easy to get confused by comparisons in totally different situations. Let us be clear that there is no "banking crisis" in India as of now. This is not to deny the need to urgently tackle the problems faced by the sector due to policy lapses spreading over a decade or so.
As private sector banks have failed to grow and improve their share in India's banking business to any respectable level despite under-performance by PSBs, the country is left with no option but to rejuvenate PSBs. In this context, a shift from the present palliative care approach to one for rejuvenation has to be fast. Anyway, transfer of inefficiency to private ownership is not an acceptable option.
With the exception of the State Bank of India, the Indian banking sector was under private ownership for decades after Independence. The need to nationalise was felt in the context of the refusal of the private sector to cater to the country's development needs including taking banking service to semi-urban and rural areas and meeting the credit needs of small borrowers. To infuse efficiency in the working of PSBs, the government and Reserve Bank of India may commission an expert study on the working of the banking system for remedial measures with restoration of PSB health in focus.
Such a study should, inter alia, look at: HR issues including recruitment, career progression and remuneration packages in PSBs; immediate need to ensure efficiency and autonomy in management at the top level; possibility of lateral mobility of middle and top level executives across public and private sector banks and supervisory and regulatory bodies in the financial sector; merger of loss-making or redundant bank branches with branches of other banks; revisiting the Lead Bank Scheme to ensure social responsibilities are not neglected; enforcing discipline in lending to big borrowers; and transfer of business to other PSBs or private sector banks in geographical areas where a particular bank is not successful.
M G Warrier Mumbai
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