Citing the fraudulent transactions of Rs 11,300 crore at Punjab National Bank (PNB) and the closure of Bank of Baroda’s South Africa branch, the Government of India’s Chief Economic Advisor (CEA) Arvind Subramanian has said that the private sector’s participation in public sector banking (PSBs) and better external regulations are key to reforming the industry.
Subramaniam said there were three reasons for greater privatisation. The first one is that public sector ownership serves as a handicap in bank recruitments, human resources procurement and governance, especially when they need more freedom to compete with private sector lenders. The second reason is that the decision making in Indian government is almost paralysed due to the four ‘C’s -- courts, CBI, CVC and CAG. The third argument is that the private sector has been a creator of wealth at least in the past three-and-a-half years.
Arvind Subramanian has proposed that the banking sector should follow five ‘R’s to straighten itself out: recognition, resolution, recapitalisation, reform and regulation, as the twin balance sheet problem was holding up bank’s growth in India. He added that recognition is identifying stressed assets to avoid NPA and secondly resolution means to pass the Bankruptcy code. Talking about recapitalization, he said there might be need for more resources, though the government has earmarked Rs 2.10 lakh crore.
