A critic of NDA government, former RBI Governor Raghuram Rajan launched its attack on the policies of the government highlighting “still-born effort to reform public sector banks” and “the failure of the Gyan Sangam“, conclave held on the banking sector in 2015.
While giving in numerous suggestions on banking reforms in the paper, including winding up of the Department of Financial Services in reducing government stake below 50 per cent, Rajan stated many of having tabled in the past that concerns PSB’s and their governance.
“Is there any reason to be more confident that they will be implemented now,” Rajan asked.
Following PJ Nayak Committee report, the government brought a variety of crucial players to wind up to the Gyan Sangam in early 2015, which recommended setting up of Bank Board Bureau to make public sector bank appointments, and creation of healthy, empowered bank boards.
“The final decision and allocation of selected CEOs to banks is still with the government. The Department of Financial Services still appoints bank board members and decides on important strategies such as mergers,” it added.
The fail in executing Gyan Sangam suggests any change has to steady political support and will have to be forced on bureaucracy, notably the Department of Financial Services in Finance Ministry, that has little incentive to change.
The costs of the system, reflected in the considerable loan losses it generates, may soon greater than what the government is afforded to pay.
With government deficits and debt levels reaching enormous levels, there are not enough budgetary resources to recapitalise banks, they said.
“An encumbered, under-capitalised PSB would not lend, which would be huge tax on growth, as it has been since last six years. More worrisome, without reform the banks will cumulate further losses,” the paper stated.
