Though not openly, especially on taking away state control of operations; also point to acute need for more capital, quality of board decisions
The recommendations of the P J Nayak committee on why and how the central government should give up its control of public sector banks (PSBs) have stirred a debate among bankers.
The panel, chaired by the former Axis Bank chief, was set up by the Reserve Bank of India (RBI) to look at various governance issues of all banks, including PSBs. For the latter, it has recommended a Bank Investment Company, to act as a holding company, aimed at curbing government’s direct interference and making these more efficient.
A Business Standard poll of 10 public sector bankers show 70 per cent in favour of government giving up its control and reducing equity stake below 50 per cent, also recommended by the Nayak panel. Most of those polled wanted to not be identified, due to the issue's sensitivity.
Bankers not in favour say in many banks the government holding is much above 51 per cent, which could be diluted to bring in more equity. They said there was no immediate need for reducing the government stake below 51 per cent, as the markets are conducive at this point for equity raising. “It is also the right time for a QIP/FPO (qualified institutional placement and follow-on offers) because there is appetite from investors,” said the chairman of a mid-size PSB.
He agreed, though, that proper examination was needed for director appointments and that the board should spend more time on policy issues than day-to-day operations. The Nayak panel had pointed to the lax appointment process and suggested both government and RBI not be part of the appointment process. It also said both RBI and the government should withdraw their director-nominees from PSB boards.
The strongest criticism of Nayak came from Pratip Chaudhuri, ex-chairman of State Bank of India (SBI), the country’s largest lender. “The Nayak panel should have taken inputs from RBI before finalising the report. All the board-level appointments are made after RBI’s approval. The selection committee for appointment of chairmen and managing directors (of PSBs) and executive directors is headed by the RBI governor, though he delegates one of the deputy governors for the interviews. So, RBI is also responsible for top appointments. RBI cannot wash off its hands if there is lack of governance in PSB boards,” said Chaudhuri.
Adding: “So far as reducing stake below 51 per cent in PSBs, it is a question of policy of the government. But I would like to ask, why was Global Trust Bank merged with a PSB and not allowed to fall? Why did PSBs and (government-owned) Life Insurance Corporation bail out UTI and not any private entity?”
Bankers supporting the Nayak suggestions said these would instil more professionalism in decision making, particularly at a time when bad assets are rising and the need for capital will assume critical importance. “Banks will become more efficient, will be able to raise funds. Banks cannot depend on budgetary support perennially, as the govt has constraints,” said the chairman of a South India-based PSB.
On banks’ requirement for Tier-I capital, the Nayak panel estimated that by 2018, government banks would need Rs 5.87-lakh crore of capital infusion. The need for capital is one of the strongest arguments made by bankers who support the suggestions. “It is required as government is short of funds, the need is huge,” said the head of a mid-size PSB.
The panel’s recommendations will also improve the quality of directors in a bank, some argued.
“It will improve governance, especially accountability of independent directors,” said a chief executive of an associate bank of SBI. The panel had suggested doing away with the committee approach of decision making, in which no single person could be held accountable if something goes wrong
My Opinion On Nayak Committee Is once again furnished below
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.
