Inviting Disaster than Suggesting Remedy
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Inviting Disaster than Suggesting Remedy

Archive Manager by WEB DESK
Jun 7, 2014, 12:00 am IST
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Report: Inviting Disaster than Suggesting Remedy 

PJ Nayak Panel Report on Bank Privatisation

Reserve Bank of India (RBI), on January 20, 2014, constituted an Expert Committee under the Chairmanship of Dr PJ Nayak, former Chairman of the Axis Bank to review governance of the Boards of Banks in India. Other members of the Committtee were S Raman, former CMD of Canara Bank; Subhalakshmi Panse, former CMD of Allahabad Bank; Pratip Kar, former ED of SEBI; Joydeep Sengupta, Director of McKinsey & Co; Harsh Vardhan, partner, Bain & Co.; Somasekar Sundaresan, partner, J Sagar Associates and Krishnamurthy Subramanian, Asst. Professor, Indian School of Business from Hyderabad. On May 13 the RBI made this report public.
The Committee has recommended privatisation of public sector banks, reduction of government’s capital to less than 50 per cent, merger of banks, re-design in governance structure, better compensation for Chairman and EDs, keep PSBs out of CVC, RTI Act, etc., Bank Investment Company(BIC) should be created under Companies Act which will control the banks, the CEO of BIC should be a private equity investment professional, Government should not issue any regulatory instructions to banks, Bank Nationalisation Act should be repealed and banks should be covered by Companies Act, Ownership functions should be handed over by the Government to the BIC, Government should not appoint any Directors in the Banks, BIC will do that, RBI nominee Directors in the banks should step down. Voting rights should be increased to 26 per cent.
Ever since the major banks in the country were nationalised in 1969, banking has been transformed from class banking to mass banking in our country. From mere 8,239 branches in 1969, today there are more than 80,000 bank branches and nearly 36,000 of the branches being located in rural and semi-urban locations. From mere Rs 5,000 crore of deposits in 1969, today Banks have mobilised more than Rs 78 lakh crore from the people as deposits. Banking services are today accessible to common people only because the banks are in public sector. Sectors and areas like agriculture, rural development, employment generation, women empowerment, poverty alleviation, infrastructure development, etc. are given loan only because the banks are in public sector. Many private sector banks in our country have collapsed in the past due to mismanagement and cheating the people. Hence public sector banks should not be privatised.
The bank unions have strongly opposed the recommendations of the PJ Nayak Committee. It insists on capital requirement quoting that the capital of public sector banks has significantly eroded with the proportion of stressed assets rising rapidly, without proper assessment of reasons and individuals/organisations behind the increased stressed assets/NPAs and consequential erosion in capital, and recommends that the public sector banks be brought under the control of those defaulters, who are responsible for erosion in capital of public sector banks.
The Committee recommends for radical reform measures, which would bring back the pre-nationalisation concept of class-banking. The Committee proposes that the Government shall distance itself from several bank governance functions which it presently discharges and recommends that the Bank Nationalisation Acts of 1970 and 1980 together with SBI Act and the SBI (Subsidiary Banks) Act be repealed, means privatising all the public sector banks, which will pave way for spread of the monopoly enterprise. Further, banks collect savings from the general public and if it is in the hands of private sector, the national interests may be neglected. Besides, nationalised banks command more confidence of the customers about, the safety of their deposits.
The committee opines that difficulties in public sector banks arise from several externally imposed constraints and suggests for reduction of Government stake to less than 50 per cent and raising the limit of investor’s voting rights to 26 per cent from the existing 10 per cent to pave way for private control.It has totally neglected the fact that India aims at socialism and this objective can only be achieved with the financial institutions under the control of Government and especially through nationalisation. Rather, to control externally imposed constraints, there are ways and means to ensure more autonomy to public sector banks not necessarily by reduction of the Government stake.

-Ashwani Rana

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