The Banker’s Retreat held in early January at Pune, is a good beginning by the Government away from the hustle bustle of the work in an informal setting is a novel idea especially in the wake of the decreasing performance of the PSBs vis-à-vis the private banks and the alarm raised by the economists about the increased interference of the Government in the working of PSBs was getting worrisome.
Public Sector Banks play a crucial role in Indian economy.
1. They’re the drivers of the business with 76% of advances and 77% of the deposits.
2. Strong nation building agenda with 82% of infra financing and agri-lending with 33% of branches in rural areas.
3. They have most widely distributed networks with 82% of branches and 61% of ATMs.
Yet their performance has been on downward slope from past 3 years when compared with Private Banks and the gap has been widening with Private Banks.
There are several endemic issues that are plaguing the health of this sector.
1. Weak financial deepening and access
2. High intermediation costs.
3. Instability and fragility due to intense fragmentation
4. Weakening of PSBs- threat to sector efficiency and stability.
Synthesis of discussions – 7 point reform agenda for the government
1. Move from state owned to state linked
A. Adopt Nayak committee report: Establish Bank Board Bureau comprising professionals and eminent bankers to appoint and empower individual bank boards
B. Set up Bank Investment Committee; transfer government investment in banks to BIC; overtime reduce government ownership to <51%
2. Fully empower banks on HR decisions – recruitment, consequence management and compensation
3. Create an environment to protect right decisions and minimize interference: Minimize CVC/CAG/CBI/RTI related issues
4. Strengthen and ensure implementation of legal framework – DRT/SARFASEI/willful defaulters
5. Strengthen and simplify processes for credit insurance (e.g., CGTMSE, housing)
6. Eliminate market distortions: debt waivers, interest rate caps (agri loans <Rs 3 lakh)
7. Enabling infrastructure for Digital Banking under Digital India
The Gyaan Sangam held justified its theme “A Step towards New Banking Paradigm”