Pune: Prime Minister Narendra Modi on Saturday assured the heads of public sector banks that there will be no interference from the government in the internal workings of any bank. He said bankers will never get a call from even the Prime Minister’s Office, let alone anyone else, financial services secretary Hasmukh Adhia told reporters in an interaction after the conclusion of the two-day meeting in Pune, named Gyan Sangam, to discuss reforms in public sector banks.
The meeting was attended by the finance ministry officials, including finance minister Arun Jaitley, Reserve Bank of India governor Raghuram Rajan and all heads of public sector banks.
Public sector banks want the government to cede control over state-owned banks in the long run, minimize investigation agency scrutiny for effective decision-making, and get rid of disruptions such as farm debt waivers and interest rate cap on agriculture loans.
The government did not offer any commitment on any of the points in the seven-point reforms agenda presented by State Bank of India chairperson Arundhati Bhattacharya on behalf of bankers.
Bankers asked the government to create a bank investment committee (BIC) that will hold all the shares of public sector banks, and in which the government’s share will eventually come down below 51%.
Bank consolidation was not in the seven-point agenda, but Prime Minister Modi wished for at least one Indian bank in global top-10 list.
“PM asked banks why we couldn’t think of having at least one Indian bank in the top 10 banks of the world," Adhia told reporters.
However, bankers have said that their boards alone should decide on any possible consolidation move. Adhia said the government is not pushing for consolidation either.
“This is the view of the bankers and we will respect it. We do not want to mandate them in merging with another bank. The only thing that the government can do is to sensitize them and this step of organizing a retreat was to sensitize them. They need to have some action. Now they will think on it, but we do not want to impose anything on them," Adhia said.
The BIC structure was first proposed by a committee headed by former chairman and chief executive of Axis Bank P.J. Nayak in May last year. The panel had said that BIC should hold all the government shares and the government should eventually bring down its stake in state-owned banks to enable a level-playing field for public sector banks in matters of vigilance enforcement, employee compensation and the applicability of the right to information.
“If such incentivization requires the government to hold less than 50% of equity in BIC, the government should consider doing so, as it will be the prime financial beneficiary of BIC’s success," the panel report had said.
Bankers also want the government to accept other recommendations of the Nayak committee, such as establishing a bank board bureau comprising of professionals and eminent bankers to appoint and empower individual bank boards.
Banks want to be fully empowered to decide on recruitment, management and compensation.
To “create an environment to protect right decisions and minimize interference", the government should minimize vigilance as well as issues related to Right to Information, Central Bureau of Investigation (CBI) and CAG (comptroller and auditor general), according to a presentation by the bankers on the seven-point agenda.
Adhia clarified that banks are not contesting the oversight of these agencies, but banks face “too much of constraints by all these agencies keeping an eye on them", which the lenders requested to minimize.
The government should also strengthen and ensure implementation of legal framework through strengthening debt recovery tribunals and bringing stricter rules on wilful defaulters, the presentation pointed.
Bankers want elimination of such “market distortions" as debt waivers and interest rate caps for agriculture loans below ₹ 3 lakh. Enabling infrastructure for digital banking under a digital India should also be one of the government’s reforms agenda, they presented.
Adhia told reporters that the Prime Minister has told banks that infrastructure is a priority area.
“Additionally the government is also focused on improving skill level and education, so banks should try and give more educational loans to people," Adhia said.
“He also said that banks should come forward to participate in the government’s plan of housing for all by 2022. He says 11 crore affordable houses is the need. This is also a big business segment for the bank," Adhia quoted the Prime Minister as saying.
Earlier in the day Rajan and Jaitley made a strong case for cleaning up the banking sector of its bad debts.
“There are unacceptable levels of NPAs (non performing assets) in some cases and the banks have to be given a sufficient amount of leeway to deal with commercial issues with a commercial mindset," Jaitley said.
Rajan also favoured channelizing “full savings" of the households into the financial system so that requisite resources for growth are made available. “In the short-term (up to 12 months) there is need to clean up the NPAs and then restructure other stressed loans so as to put the economy back on the track," Rajan said during the meeting.
According to RBI’s financial stability report, published on 29 December, gross non-performing advances (GNPAs) of banks increased to 4.5% of total advances in September from 4.1% in March, while net non-performing advances (NNPAs) increased to 2.5% in September from 2.2% in March. Together with restructured assets, stressed loans increased to 10.7% of total loans in September from 10% in March. The stressed loans of public sector banks made up 12.9% of their total loan book, much higher than the 4.4% of private sector banks. “The extent of restructured assets in the banking sector, especially public sector banks, is a cause of serious concern," RBI said in its report.
PTI contributed to this story.