Will DK Mittal succeed in his attempts to put PSU banks in order?

No other bureaucrat has stirred the system as much asTN Seshan did two decades ago as the chief election commissioner of India. Now, DK Mittal, secretary , financial services, is doing his bit, though in a rather limited way, in the field of state-run banking.

Among state-run bankers, Mittal's name evokes as much anger as admiration , which is not surprising given the government and its companies are usually associated with lethargy and slow decision making; but there are exceptions there too, like Mittal.

What a public sector bank's chairman dreads these days is not bad loans nor the slowing loan growth, not even lower deposit growth but mails from Mittal and his officials in the department of financial services. They will become a part of banklore. As secretary, financial services, Mittal's job is to oversee policies in banking , insurance and pension sectors.

India's financial system is government dominated with nearly three quarters of it being controlled by state-run enterprises such as State Bank of India (SBI) and Life Insurance Corporation (LIC). Mittal does that quite effectively. But in his zeal to make a mark in an otherwise sleepy job profile, where bank chairmen return to their cocoons once fiscal-year targets are achieved, Mittal appears to have stirred a hornet's nest. Mittal has done more than any other bureaucrat to wake up these bankers, but in the process may be crossing the rubicon.

Few can dispute that Mittal has to protect the interest of the largest shareholder , but the issue is the manner in which it is sought to be done when there are minority shareholders too who, at least by definition, are equal partners.

His actions range from issues such as transfers and promotions to treatment of bad loans. While paying attention to these details shows commitment and a hands-on approach , it also probably amounts to meddling in the affairs of corporate entities, which have mechanisms called board of directors and management committees.

Is it the job of a bureaucrat to run a bank, or that of the banker? "The regulator has to regulate,'' says Yaga Venugopal Reddy, former governor at the Reserve Bank of India (RBI) and a bureaucrat himself who played Mittal's role in the 90s. "The majority owner, in terms of corporate governance, cannot dictate operationally.'' The latest directive from the ministry relates to the proportion of bulk deposits that banks can hold of their total.

This being capped at 10% of the total could reduce the ability of banks to manage their assets and liabilities, which differ among lenders. A one-size-fits-all approach here could be ruinous. Directing all banks to treat a company's loans as bad if the firm defaults with one lender is another contentious issue. Businesses concerning different banks may be performing in a different way and there could be disputes due to specific issues .