The News International Team
Addressing a gathering of chiefs of India’s public sector banks, Prime Minister Narendra Modi vowed his government would stay away from “political interference” that has long been seen as its Achilles Heel but called upon them to take steps to strengthen their operations, achieve scale, boost financial literacy and inclusion and help in augmenting economic growth in the country.
The PM was speaking at the culmination of Gyan Sangam, a first-of-its-kind, two-day summit held in Pune that saw senior banking executives and top officials from the government and the Reserve Bank of India gather to discuss ways to strength the public banking sector.
Apart from the prime minister, finance ministers Arun Jaitley and Jayant Sinha (MoS), RBI chief Raghuram Rajan and chief economic advisor Arvind Subramanian too attended the event.
Over two days, the event saw banking officials conduct various seminars and group discussions on key issues such as ensuring greater autonomy for banks, improving risk management practices, their recapitalization needs, improve asset quality and curb black money among others.
They then presented key takeaways of these discussions to the prime minister, in which both short- and long-term action plans were laid out.
No major announcements, but broad change agenda laid out
Among the key commitments PSU banks made were to reorient strategies to enable small ones to focus on niche capabilities, implement steps to shore up talent, use technology in a greater way, strengthen risk management and work more closely with non-bank channels such as payment management systems or bank correspondents.
At the same time, banks urged the government to provide them greater leeway by considering transferring its stake to an independent bank investment committee run by professionals, and in the long run look to reducing its stake below 51 percent – key recommendations of the PJ Nayak committee.
Bank chiefs also stressed upon the need for greater freedom in hiring decisions, lesser scrutiny from vigilance agencies, stronger debt recovery laws and fewer interference from governments in the form of market-distorting debt waivers or interest rate caps.
On its part, the government stayed away from announcing any immediate major decision, either with respect to government control on banks, recapitalization or, importantly, consolidation – on which analysts were expecting something.
On the last point, prime minister Modi stressed upon the need for scale, pointing out how banks in China and Japan featured in the list of the world’s top 10 but financial services secretary Hasmukh Adhia said the decision whether some large public sector banks need to get merged with a few smaller ones will be left to them.
RBI governor Raghuram Rajan stressed upon the need to clean up NPAs and then restructure other stressed loans so as to put the economy back on the track.
He added that with the upcoming licensing of the small and payment banks, there would be new players in the industry. “The competition amongst the PSBs will also grow to meet these challenges. Accordingly, PSBs have to develop differentiated products,” he was quoted as saying in a press release.
Finance minister Arun Jaitley said that the government had taken up financial inclusion in a big way through the Pradhan Mantri Jan Dhan Yojana and added that most bank accounts created in the scheme would help in the introduction of direct benefit transfer (DBT).