In my view Nayak panel has done nothing or suggested no such good idea which may help in the improvement of health of Public Sector banks. Panel has not fixed responsibility of erring officials and erring ministers. What they have suggested is nothing but old wine in new bottle. This is purely an attempt to hide the past mistakes of top bankers and regulators and set up a new governance committee, new board for selection of top management etc.
It has now become clear to RBI and Government of India that they have damaged the fundamentals of public sector banks and time is ripe now for public revolt against regulators. One crystal clear point which emanates from panel report is that RBI and GOI failed to do their duty in last two decades and it is their sheer negligence which has resulted in current critical sickness of PS banks. They remained silent spectators when CEOs of banks were looting banks in the name of credit growth. They remained deaf and dumb when corrupt bankers were humiliating senior officers and workers of banks in the name of merit oriented policy for promotions, transfers and recruitment. They maintained complete silent when politicians were exploiting banks in the name of revival of economy. They were sleeping when legal set up for recovery failed to recover money from defaulters even after lapse of two or three decades.
I am of strong view that health of PS banks have gone from bad to worse during last two decades only due to bad Human resource policy and due to worst execution of good policies. If one peeps into performance and appraisal reports of all officers of last two decades , it will become crystal clear that good officers have always been neglected in all promotion processes and bad officers who were master in flattery and bribery got one after other elevation. And now gang of bad officers is ruling the banks with unity. They unitedly protect bad officers and sideline really good officers similar to case of Mr. Khemka in Harayana .
As long as workers of any organization do not feel satisfaction after doing devoted duty, there is no chance of bank improving their health whatsoever may be the finding and suggestions of Nayak Panel. It is only in PS banks that 20 year or 30 years experienced good officers are rejected and brand new officers in higher scale are recruited directly to please top bosses and politicians. Juniors are ruling seniors not because they are more intelligent and talented ( barring some exceptions) but because they used money and powerful bosses for getting quicker promotions and got success in getting new job in higher scales.
It is this dirty game of top bankers that health of banks have deteriorated during last two decades whereas private banks have improved their health under similar and fully same external situations like global recession or natural calamities, or interest rate freedom or recruitment freedom or government policies or legal set up etc.
Officers of PS banks work to please and protect the self interest of their bosses whereas officers in private banks work for betterment and for protection of their organization.
Anger of investors, bank customers, bank staff and that of all concerned against government is on rise due to relentless rise in stressed assets and due to government failure in containing the same and in recovery of bad loan from defaulters. Before it becomes violent, government as usual set up a panel for suggesting alternate ways and switch over the responsibility of failure to another set of body and get rid of punitive action for their past mistakes. And panel is also manned by such persons who can submit reports as per whims and fancies of the officials who are behind all stories of scams, frauds, bad debts and all types of irregularities.
It is the habit of Government; first they exploit the government organization and government fund for self interest and then change the name of the scheme and name of regulators or merge the maligned schemed to some other schemes. In the past many small banks , big banks , rural bank or cooperative banks or chit funds have failed and then merged with some stronger entity to avoid the consequences of public anger against mismanagement and large scale fraudulent activities perpetuated by the management of the failed bank.
As long as officials and the persons who hold the key post in any organization are bad and ill-motivated, no power on earth can stop misuse and pilferage of government money and no power can ensure good health of any public sector undertaking or any department. When top officials in banks are bad, assets created by them will definitely be bad and no power on earth can stop rise in bad assets of these banks. Nothing is to change if rules for constitution of bank’s board are altered or stake of government is diluted to below 50% in PS banks.
This is why they , corrupt bankers in nexus with corrupt team of politicians and regulating officials either write off the bad loans or keep bad loan evergreen by fresh lending or restructure bad loans or sell the bad loans to ARC to clean the balance sheet. All efforts are to conceal evil works and bad assets .This is a usual phenomenon in banks and in all government offices dealing with finance and money. When a bank become weak or goes beyond control, it is merged with some other stronger banks.
It is the Habit of the government not to cure the root cause of the disease but to make lame excuses for failures or to put carpet on the malady or carry out little surgical operation to befool innocent masses.
And finally flattery and bribery culture is the root cause behind all mismanagement and all scam stories . Weak and ineffective judiciary adds fuel to fire.
Following are the key commendations of the panel:
*Given poor asset quality and low productivity, either privatize PSU banks or transform governance structure to make them efficient.
*Reduce government stake in PSU banks to less than 50 percent
*Remove dual structure of both Finance Ministry and RBI regulating PSU banks. Give all regulatory authority to RBI
*Improve quality of PSU bank board discussions; focus on key areas like business strategy, financial reports, risk, and compliance.
*The government should transfer its stake in PSU banks to a holding company termed Bank Investment Company
*Government should reduce its stake in BIC to under 50 percent and appoint a professional management for BIC
*For better accountability, BIC should be governed by The Companies Act 2013, and not the Bank Nationalisation Acts of 1970 and 1980
*Ownership functions to be transferred by BIC to the bank boards. Appointments of directors, CEO to be the responsibility of bank boards.
*Have uniform bank licensing regime across all broad-based banks, and niche licenses for banks with more narrowly defined businesses
*Allow mutual funds , pension funds, PE funds to hold 20 percent in private sector banks, without having to take RBI approval
*Allow promoter investors to hold up to 25 percent in private sector banks, against the 15 percent ceiling currently
*Ensure a minimum five-year tenure for bank Chairmen and a minimum three year tenure for Executive Directors
*Private equity funds, including sovereign wealth funds, be permitted to take a controlling stake of upto 40 per cent in distressed banks
*Allow voting rights in proportion to the stake held Link Money ControlRBI, not FinMin, should oversee PSU bank regulations: Panel The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives.
The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives. In July 2012, the government had written to the CEOs of all scheduled commercial banks, public sector financial institutions and public sector insurance companies ‘may consider’ uniform card rates for bulk deposits for different maturities at least up to one year, so as to create a ‘level playing field’ for all banks.
The circular warned that failure to do so would be treated as a violation of the government’s instruction. "The circular acts at cross-purposes with the regulatory regime of deregulated interest rates which RBI has established.
In effect the government becomes a second regulator, with little sensitivity to whether its directives are consistent with RBI regulation,” the report said.
Last October, the Finance Ministry had asked public sector banks to offer cheaper loans for customers wanting to buy automobiles and consumer durables, in an effort to boost demand in the economy.
But even more damaging was the interference by the Finance Ministry in 2008 when it asked PSU banks to waive off Rs 76,000 crore worth of outstanding loans to farmers. "Any directions issued which are applicable to a subset of banks (PSU banks in this case) do damage to that subset, however laudable the objectives.
Those banks not part of the subset (private sector banks in this case) are under no obligation to participate; if they do so the participation is voluntary, while for the subset it is coercive,” the committee said in its report.
The panel said that for the government to issue other instructions in pursuance of development objectives solely to public sector banks was discriminatory and anti-competitive. "If the tasks are indeed laudable, they should be laid down for implementation by all banks. The straightforward way of doing so is to route it through RBI,” the report said.
All you wanted to know about Nayak panel's PSU banks report (source MoneyControl)
An RBI-constituted committee led by PJ Nayak Tuesday submitted its recommendations to improve the governance structure of state-owned banks and also to help private sector banks attract more capital.
An RBI-constituted committee led by PJ Nayak Tuesday submitted its recommendations to improve the governance structure of state-owned banks and also to help private sector banks attract more capital.
Following are the key commendations of the panel:
*Given poor asset quality and low productivity, either privatize PSU banks or transform governance structure to make them efficient.
*Reduce government stake in PSU banks to less than 50 percent
*Remove dual structure of both Finance Ministry and RBI regulating PSU banks. Give all regulatory authority to RBI
*Improve quality of PSU bank board discussions; focus on key areas like business strategy, financial reports, risk, and compliance.
*The government should transfer its stake in PSU banks to a holding company termed Bank Investment Company
*Government should reduce its stake in BIC to under 50 percent and appoint a professional management for BIC
*For better accountability, BIC should be governed by The Companies Act 2013, and not the Bank Nationalisation Acts of 1970 and 1980
*Ownership functions to be transferred by BIC to the bank boards. Appointments of directors, CEO to be the responsibility of bank boards.
*Have uniform bank licensing regime across all broad-based banks, and niche licenses for banks with more narrowly defined businesses
*Allow mutual funds , pension funds, PE funds to hold 20 percent in private sector banks, without having to take RBI approval
*Allow promoter investors to hold up to 25 percent in private sector banks, against the 15 percent ceiling currently
*Ensure a minimum five-year tenure for bank Chairmen and a minimum three year tenure for Executive Directors
*Private equity funds, including sovereign wealth funds, be permitted to take a controlling stake of upto 40 per cent in distressed banks
*Allow voting rights in proportion to the stake held Link Money ControlRBI, not FinMin, should oversee PSU bank regulations: Panel The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives.
The PJ Nayak-led panel on governance of bank boards has recommended that public sector banks should be answerable only to the RBI, and not to both RBI and the Finance Ministry as is the case now. This would provide a level playing field for state-owned banks vis-à-vis their private sector counterparts, the panel said. "All regulatory functions of the Government need to be moved forthwith to RBI, freeing the public sector banks of dual regulation,” the committee said in its report.
The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives. In July 2012, the government had written to the CEOs of all scheduled commercial banks, public sector financial institutions and public sector insurance companies ‘may consider’ uniform card rates for bulk deposits for different maturities at least up to one year, so as to create a ‘level playing field’ for all banks.
The circular warned that failure to do so would be treated as a violation of the government’s instruction. "The circular acts at cross-purposes with the regulatory regime of deregulated interest rates which RBI has established.
In effect the government becomes a second regulator, with little sensitivity to whether its directives are consistent with RBI regulation,” the report said.
Last October, the Finance Ministry had asked public sector banks to offer cheaper loans for customers wanting to buy automobiles and consumer durables, in an effort to boost demand in the economy.
But even more damaging was the interference by the Finance Ministry in 2008 when it asked PSU banks to waive off Rs 76,000 crore worth of outstanding loans to farmers. "Any directions issued which are applicable to a subset of banks (PSU banks in this case) do damage to that subset, however laudable the objectives.
Those banks not part of the subset (private sector banks in this case) are under no obligation to participate; if they do so the participation is voluntary, while for the subset it is coercive,” the committee said in its report.
The panel said that for the government to issue other instructions in pursuance of development objectives solely to public sector banks was discriminatory and anti-competitive. "If the tasks are indeed laudable, they should be laid down for implementation by all banks. The straightforward way of doing so is to route it through RBI,” the report said.
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