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This is not the right time for privatizing India’s public sector banks—both from the government’s perspective, and also from a valuation and market standpoint, but the time has come for the consolidation of non-performing, government-owned banks, and the country needs to take the debate forward on forming a bank holding company. This seemed to be the consensus among panellists at MintAsia’s third global banking conference in Singapore recently.

“The point is not about ownership. It is about the separation between ownership and management. It is about the professionalism of management. We have had a good debate in India for a while on having a bank holding company—that would be more meaningful, and even if I talk from the market perspective, an owner does not sell any asset when the going is not good, and also does not sell when there is a possibility that you can get the going good in the future—it makes sense to increase valuation and exit at a later stage, rather than making these distress sales. So, even from the market’s perspective, it might not be a good idea," S.S. Mundra, former deputy governor, Reserve Bank of India (RBI), said at the event held in a packed Skysuite at Swissotel, The Stamford, on 9 March.

Rajnish Kumar, chairman, State Bank of India, said the first step towards reviving public sector banks was to improve the quality of governance at the board level and also at the top management. “This is entirely in government hands. I don’t appoint my board, I don’t appoint my managing director. To that extent, the onus is on government to find the right people, to man the boards and for management of PSU banks. We don’t need 20 something public sector banks. But you don’t consolidate when everyone is weak—if you do that, you are selling them very cheap. It does not make economic sense to divest at today’s price," he added.

Indeed, while India’s banks may not be in the best of shape, the future remains bright as some of the big-ticket reforms that have been implemented come to play. The insolvency code, the biggest banking reform in recent times, the government’s recent move to recapitalize PSU lenders, and the goods and services tax (GST)—the biggest tax reform the country has ever seen, are indicators that the nation is taking the right policy steps. This seemed to be the consensus among the panellists.

The event took place amid a debate in India on loan defaults, bank frauds, tax evasion and corruption, in the wake of the $2-billion fraud at Punjab National Bank (PNB), the country’s second biggest state-run lender. This is also seen as the biggest bank fraud in India’s history, allegedly perpetrated by jewellers Nirav Modi and Mehul Choksi, who colluded with rogue executives at one of PNB’s Mumbai branches, to secure credit from overseas lenders using fraudulent guarantees.

The discussion was moderated by Tamal Bandyopadhyay, consulting editor of Mint. Edited excerpts:

Tamal: Everything appeared to be working fine in the Indian banking scene. RBI had been aggressive in getting banks to clean up books. State bank of India (SBI) itself has been ruthless in cleaning up its books. You even announced a loss in the December quarter. One fine morning, PNB sends a note to NSE (National Stock Exchange of India Ltd) in a fraud case of Rs280 crore—that is fine—and 2-3 days later, the fraud amount becomes Rs11,700 crore. Then it becomes $2 billion-plus. Then we have other names like Mehul Choksi, Rotomac Pen’s Vikram Kothari. We want some clarity. Is this some sort of contagion, or is there a witch hunt on? Are we being unfair to the banking community? There is a lot of talk the nexus between bankers and corporates and promoters. Give us your sense.

Rajnish Kumar: The PNB fraud was as much a shock to the general public in India as much to bankers. We all thought that it was a challenge on the asset quality of the firm. We have taken up the challenge. We will clean it up. In the December quarter, SBI did a very aggressive clean-up, and we are ready for another round in March. The climate has become positive as a result of the capitalization programme of the government. We saw our share price and market capital go up by 30% in three days, and there is a lot of discussion happening that if government capital is coming, what are the obligations on the recipient banks, and what will they do in return? Incidentally, one fine morning, the PNB fraud comes in, and the narrative changes. So, definitely, it exposed the weakness in PNB at a particular branch. We don’t yet know what PNB has found in its investigations. I am sure that after the investigations, it will be shared with all other banks, but apparently all systems and controls failed. That is the obvious conclusion. Is that the situation among all the banks and all the branches? I think it will be a very wrong conclusion to draw. In my view, it is a one-off incident limited to a particular branch, limited to and caused by some particular employees.

Frauds in the banking and financial systems do happen everywhere. But a fraud of this magnitude, this size and that it went undetected for so long—that has rattled everyone. There have been instances of fraud being detected in 3-5 months… There have been small frauds being committed by some insiders going on for years and being detected in 4-5 years. The problem with the banking system or the financial system is that frauds happen regularly. In 1992, we had the Harshad Mehta scam; in 1997, we had issues in South-East Asian countries; in 2008, we had the global financial crisis. So, I don’t see any contagion in India.

It is an unfair comment in my view to say there is a nexus between bankers and corporates and promoters, or to say PNB was receiving a high fee-based income from these transactions. We don’t know how much PNB was making out of these transactions. But there is no nexus. One thing is a fact: corporates definitely receive more attention than common man does from the top management of banks. I haven’t seen any farmer walking into my office—but when large corporates come to the office to discuss things, sometimes this creates a situation where people feel that if you are an important person, you have access to the chairman of the bank. So that is definitely the ground reality. But let me tell you that in India, there are at least one million people in banking. Out of one million, there may be a few black sheep here and there, which is possible in any organization and in any profession. But if a large mass of bankers was not honest, the system would collapse not in years, but in months.

Tamal: Mundra, you were deputy governor in charge of supervision and regulations. You were also a commercial banker heading a large public sector bank. You were probably the first person in 2016 who in one of your speeches flagged the lacunae in the system that core banking solutions (CBS) of the banks were not integrated with SWIFT. Wearing the regulator’s hat, could you tell us what went wrong and who is to be blamed?

Mundra: Frauds in the banking system have been happening, and they will continue to happen. About 2,500 years ago, Kautilya (Chanakya) had written about 40 ways in which funds could be embezzled by those handling them—these are eternal truths—and the PNB fraud shows they’ve found the 41st way.

We also know that internationally, there have been several instances of frauds with bigger dimensions, but I fully agree with Rajnish—frauds happen when someone is using some intelligent method, using technology in a way which is unimaginable, but with PNB, this was something, which is really very rudimentary. A fraud of this kind to run for a long period is a complete failure of the controls we have in place. What are those controls? There are several questions. What was the management doing? What about the auditors? what were the regulators doing? People are even asking what were the finance minister and the Prime Minister doing? We need to put this in perspective—there are some basic fundamentals that are there. Someone created the transaction and someone verified it. If two eyes can be compromised, then four eyes can also be compromised. But, at the end of the day, transaction logs are created, the branches are put under concurrent audits. The auditors are required to look at all transactions, there is also a requirement that people in sensitive posts, they should be sent on surprise leave, there is also a requirement of job rotation—if all these preliminary checks, if they have not been observed, most of this will be under the level of local management. You can’t expect the apex management to be looking at each of these issues.

What was the regulator doing? When we see the debate that is happening in India currently, it implies RBI is expected to repeat the audit of every branch of every single bank. And do that for a branch that is audited by internal auditor, external auditor, the concurrent auditor, statutory auditor—and on top of that, the public is now expecting the regulator to check every transaction that is happening in the country. I think we are seeing a lot of uninformed and unrealistic kinds of discussions. Regulators globally show the direction, they come up with a fraud detection framework. In 2016, I had indicated that CBS of banks was not integrated with SWIFT. At that time, there were some isolated incidents that were happening. People ask why did we (RBI) not roll out regulations on this. Let us be objective. Each bank is at a different place in its technological journey. There are different levels of systems and capabilities. In the normal course, no regulator would like to give a broad dictation, but only show the direction of risk, and it is expected that each institution would take a business call. If we were dictating on every weakness, then RBI will be accused of micromanagement. Particularly in public sector, we have to understand one thing—they were late entrants into technology, and their adoption of tech has not been happening in a very consistent manner, and the other important thing that we must understand, particularly in public sector banks, we have a situation where the supervisor must have much better technological skills. It means you have to have a very centralized surveillance system. Today, with technology, artificial intelligence, this is possible.

I think PNB was a localized phenomenon. When I say local, I don’t strictly mean a branch—we are a federal structure. It could be a bank, it could be one region, it could be a state. In this case, that PNB branch has a line of command to the head of a particular region—it could be at that level.

Tamal: The fallout of all this is that banks have stopped lending again. We are also seeing PNB’s refusal to admit its obligations, and rather than trying to say it is a fraud where multiple banks are involved, is creating problems with trade finance segment. It is very difficult to get letters of credit and other instruments now. You need a co-guarantee. The discount rate has gone up. For importers, the cost of money is going up.

Rajnish: When an incident or accident of this magnitude happens, it is natural that there will be a reaction in the market. As far as PNB is concerned, there have been very categorical statements from its management that they will honour all bona fide transactions. In SBI, we have examined each and every letter of undertaking, and I believe these are bona fide transactions, and we have submitted our documentary evidence. When something like this is happening, my fear is that the entire management is busy. One day with the Central Bureau of Investigation (CBI), the next day with the Serious Fraud Investigation Office (SFIO), then Enforcement Directorate (ED)—it is a trying moment. In this situation, probably for even banks like us, we are very anxious that our money is paid as quickly as possible, but we need to have some patience. We need to give some time to the PNB management. Let them examine every transaction, and wherever they find these are bona fide transactions, I am confident that they will pay. PNB is the largest bank in the country after SBI, and I fully believe its responsible management won’t do anything that damages their reputation permanently, or that of the Indian banking system.

So, everybody will need to have some patience and not rush to conclusions. That said, this is a fact that the global banking community and investors have a certain amount of nervousness dealing with Indian banks. For all banks, risk management departments would have started asking questions to their relationship managers—this is natural. When you say banks are not lending, it is not an outcome of what has happened in PNB. PNB is purely an operational issue. But the past three years, banks in India have been struggling with non-performing assets (NPAs). With NPAs, the learnings have come at a huge cost for banks. So, it is not business as usual for me—should I not look at my underwriting standards, and wherever there were gaps and weaknesses? I need to necessarily plug them. And if that gets equated with risk aversion, then let it be. But at the same time, all of us realize that banking is still about taking deposits in and lending money. So that activity cannot undergo a change—for SBI, I can tell you that if you bring a quality proposal, which meets my underwriting and price expectations, I will not say no. The willingness to do business is still there. Because of PNB, attention has been diverted, and that is natural. Nobody today would be looking at expanding the top line at any cost. That consciousness is pretty much there. It is as much a demand issue on corporate credit side and not just supply side issues.

Tamal: So you are saying that SBI is not risk-averse, but that you have become more meticulous, because of NPAs. What is happening with NPAs? RBI has asked all banks to come clean in the next 15 months, or five quarters. What kind of pressure will the banks undergo? Will we see banks continuously declaring losses? Will SBI see another loss in the March quarter?

Rajnish: I can’t predict whether we will have a loss in the March quarter. On losses, I can speak only for SBI—mark to market is something on which we have less control. We have requested RBI for some relief or some alignment in line with the international financial reporting system. So we are not asking something that is not doable. This is a discussion that is going on, and we have to wait on what RBI has to say. According to RBI’s 12 February circular, as soon as there is a default, you have to start thinking about a resolution plan, and resolution plan must be implemented in 180 days. If it is a temporary problem that gets resolved, then it’s fine. And if it’s not, then you have to think of a resolution plan, and that must be implemented within 180 days. If not, there are regulatory guidelines to take it to National Company Law tribunal (NCLT).

Let me talk about the positive outcomes—in the past three weeks, I have seen that the borrowers have responded very well. Now there’s a situation where you don’t pay for a single day, and you come under the radar, there is a real threat that you will lose your business under insolvency code. So, that is definitely bringing in enhanced activity from corporates. To that extent, the banking system and the overall financial system will benefit because of the discipline brought in by the 12th February circular and the insolvency code. Why did we not see this three years ago? Because there was no insolvency code then. I consider the insolvency code to be the biggest reform in the Indian banking sector. 2017 has been the year of big bank reforms.

Nothing changes for banks because we were working on a resolution plan earlier and we will also work on the resolution plan now. Depending on each bank’s situation, there will be an impact of this recognition of this category—where a 90-day default will now have to be provisioned under NPAs. On the provisioning side, of course, on the date it becomes sub-standard, then you provide 15%, and for those above Rs2,000 crore, it is a 12-15-month process. So, on the actual incurred losses, banks will be providing in the next 12-15 months.

But there are many impractical suggestions in that circular. For example, 20%, unless it’s paid, you cannot upgrade the account. It is impractical. In that specified period, even if there is a single day’s delay, then within 15 days, you need to refer it to NCLT.

In a business, say if I can’t upgrade an account for four years, and then in four years, I am expecting there will never be a situation for that business, where they can’t afford even a single-day default, and we take them to NCLT, it is highly impractical.

We have made a representation to RBI. But again, I am saying that the spirit of the guidelines and the discipline it brings in will be good for the banking system, good for corporate lending. If there is enhanced pain, the pain was already there, it is fine. Fiscal 2018 is the worst year. You can call it a washout year. After this quarter, things will start improving—this is my assessment. This is based on deep analysis of each and every account which we are handling. Even after the 12 February circular, I will stick to what I had said after our third quarter results.

Tamal: As a regulator, you had a ringside view of how the NPAs panned out. Why did it happen?

Mundra: Let me add a couple of points. The good news is that, and a large part of this audience understands, what we have seen in past 1.5 years is more of a recognition of the problem that was already sitting in the system rather than a new problem. In the banking system, as you start a continuous process recognition, as you come down on the ticket size—when I put all of that into perspective—I won’t be surprised that we still have a struggle for the next 4-6 quarters for a large part of the system. Sir Winston Churchill famously said a good crisis should never be allowed to go waste. This is that kind of crisis. There is no point halting it midway. So the discussions should continue. From a policy perspective, whatever is happening is right. But I have a grievance about the implementation. India’s policies are always world-class. The problem is our execution. That is where we get into the mess that we’ve been seeing. In a lighter vein, just like you have ethical hackers to test IT systems, whenever we have a new policy, we can have a group of ethical policy hackers, who can see how the policy can be abused.

Directions are right, but I think some of the reactions and the way we are implementing, we are going overboard. Like for RBI to say that banks recognize on the very first day of default and initiate recovery, and do weekly reporting of every account—how can an account not ever become overdue for even a day—for any medium-, large-size account, there are 25 to 30 creditors. It means from the first day onward, everyone from the chairman and general manager will be busy getting in touch with each other because the regulator has said that start discussion on recovery. Even as they start talks, news will come in that borrower has repaid on the third day, as he has sorted out his temporary cash flow issues. These are two extreme measures. Now the government has announced that for all accounts of more than Rs50 crore, check for frauds—the problem with the banking system is that the one who is assigned is obliged to find the fraud—this is the reality. Now, who defines fraud? Let’s say, for example, an SME is facing a genuine problem in getting a loan diverted for his working capital because he cannot hold his demand/order—now, this can be looked at as a fraud. When you leave the interpretations so wide, it becomes a problem. Over the past 10 days, every investigating agency has been calling top executives of banks—from chairman to CEOs, and I see a competition here—if one agency interrogates a chairman for 2 hours, another does for 4 hours, and the third for 6 hours. Now, if the entire senior management of India’s banking system is spending their time answering queries of agencies—yes, agencies are trying to find the root of the problem—but, why can’t you create an empowered group with representatives from all investigating agencies who can work together? Let them collectively meet the top management. Now we are seeing some showmanship between the different agencies. The direction is well-meaning but look at the implementation.

Now, what has caused NPAs? It is easy to assign blame and say bankers were corrupt, regulators were careless. There are four contributing reasons and each is equally responsible—the chemical compound or proportions may be different for each case.

First, there were promoters who were rogue. Second, there are promoters who are over ambitious because the economy was growing in double-digits, and their projections were very ambitious. Third, there were bankers who bought such theories presented by the promoters and believed that these companies would be able to repay in a growing economy. Fourth, and we are not talking about it, the policy direction that’s been happening for the past 5-to6 years at all levels—government, executive, judiciary—they have contributed equally. Until we look at all these areas and learn the right lessons, I am sure we will see a repetition of what has happened.

Obviously, I would refrain from mentioning names or departments. As far as the judiciary pronouncements, be it gas supply, iron ore mining, coal mining or spectrum—there have been a series of judgements. We have instances where power plants have been put up and the new chief minister scraps all earlier agreements. From cancellation of coal mines, now chief ministers are cancelling projects or revising earlier agreements. Look at the collateral damage. This brings suspicion on our policies and our system. Entrepreneurs will become sceptical. One more specific example without giving names—there was a mega steel plant, which was put in the western side of the country. To bring this energy and production on the eastern side of the country, they put up another plant, which was supposed to transport the slurry through a pipeline. I’m not defending the promoters. They might’ve taken their pound of flesh and they are not known to be generous to investors or lenders. I’m leaving that aside. Now, let’s say the pipeline is about 250km. To my mind, it was completed for 236km—for 14km in between is passing through a forest, so the environment issue is there, and it was not getting clearance. There was even an offer from the promoters that the 14km they could lay the pipeline underground, but that was also not considered appropriate. This remained in limbo for 2-3 years. Now, if you put a capital cost and for three years it’s in limbo, it will hurt the project. There are numerous such examples.

(From audience) Does all of this mean that for SBI, as you are hit from all directions, what is the strategy for PSU banks? Has RBI been too harsh ? Is that a result of a breakdown in communication between all the stakeholders?

Rajnish: For SBI, as far as the balance between credit and investment goes, lending continues to be the dominant activity. Investment is a small portion and not the dominant one. It is only by compulsion, due to demonetisation, because of the extra money that came in, we had no choice but to invest in government securities. Otherwise, by choice, we would never buy government securities, particularly more than what it is required by regulation. Our primary activity is still the depositing and lending, and we will not have shied away from that—there may be a transition period of 3-to6 months and some disruptions but, ultimately, if the banks don’t lend, then they cannot survive.

Mundra: Just one point here. Yes, there are big-bang reforms and all, including RBI should be supportive of that. My only point is that if there is a diagnosis that requires chemotherapy, it has to be given at a measured pace. You can’t administer six chemotherapies in five days and expect the patient would become better faster. You are only killing the patient. For RBI, I would only say that you don’t speak when it is needed—that is a problem. You speak when it is not needed, then that is also a problem.

(From audience) What about privatization? That can be a solution for PSU banks.

Mundra: I have always believed that performance can be ownership neutral, and privatizing the banks is not going to be the solution. As a public sector banker, I’ve said that in India, at least, we have made public sector banks by choice. During the 2008 crisis, in all the advanced economies, the public ownership of banks was due to default and by compulsion—not by choice. The point is not about ownership. It is about the separation between ownership and management. It is about the professionalism of management. We’ve been having a good debate in India for a while on having a bank holding company—that would be more meaningful, and even if I talk from the market perspective, an owner does not sell any asset when the going is not good, and also does not sell when there is a possibility that you can get the going good in the future—it makes sense to increase valuation and exit at a later stage, rather than making these distress sales. So, even from a markets’ perspective, it might not be a good idea.

Rajnish: The track record of private ownership of banks in India has not been good, except for 2-3 private banks. You look at history. How many private sector banks have had to be bailed out? The only solution RBI has been able to find has been to find another bank and force it to take over the troubled bank. That is the history of private sector banking in India. If you look at the period between 1961 and 1969, the track record of private sector banks was really poor, which led to nationalization. So, when you talk about governance deficit at public sector banks, it is an issue that needs to be addressed. But by changing the ownership, will we achieve the desired result? That is debatable. Like in a PNB-like situation, if it was not government ownership, you would have had a run—not only on PNB, but the entire banking system in the country would have been on the verge of collapse. And apart from that, whenever you travel to India—when you step into Bombay (now Mumbai) airport, or Delhi airport, or any other airport, you should always think that it is the contribution of public sector banks that have created these projects. When you travel on highways, anywhere in India, they may be limited, but you should thank public sector banks for their contribution. Because they lend to these infrastructure projects, you are travelling on these roads. Today, India has a power surplus situation—while I personally think that there is no surplus—remember that we’ve added 75,000 MW of capacity—it was PSU banks that bankrolled these projects in the past 5-6 years.

So, criticize where it is due—definitely, we have issues around governance, but there are many things public sector banks have done and, unfortunately, in the current debate, this is being lost

(From audience) What is your take on fintech?

Rajnish: Fintech is being celebrated as a competitor to us. But, for fintech firms in India, it is very difficult to scale up. The opportunity for collaboration is coming as the technologies they are bringing are of immense use to incumbent players like us. At the same time, the kind of platform we can provide, our customer base—it will take the fintech start-ups 100 years to get that kind of reach. There is a great need for collaboration between fintech firms and India’s leading banks—if fintech start-ups have taken the initiative for innovative solutions, it does not make sense for me to spend my time, effort, and money, when the start-up can provide a solution to the problem. At SBI, we are very active with fintech start-ups, we get procurement from them, we invest in them and we use their collaborative methods. That is a good story, and this is what we’ve been doing so far to ensure that we are there as far as innovation in financial services space is concerned.

Tamal: We’ve discussed as to how privatization may not be the solution to save PSU banks. But if you look at India’s public sector banks, you see the factory is not working in full capacity—50% of them are non-functional. So what can be done? We live in this age of romance and nostalgia, and say it is PSU banks that are helping build bridges and infrastructure. Yet, most PSU banks are sick.

Rajnish: There is nothing wrong with taking pride in what you are doing and what you’ve done—so, we will continue to take pride in what we are doing. But the problem is really complex. I must give due credit, of course, and I always do that—the new-generation private banks have contributed a lot to the development of India’s banking sector. In fact, it was the wake-up call given by them that changed the banking landscape—before that, we (SBI) were the largest in the universe, there was no competition; we could keep the client waiting for six hours and then say, “sorry I can’t meet you". That was the situation once; but it all changed. Be it a home loan, car loan, other loans, personal loans, private banks brought the changes, and public sector banks then responded well to these changes, and they, too, began to do technology innovations, expanded their offerings to customers. But if you ask me what to do, today is not the right time to privatize PSU banks—and on that, I am certain. The first thing you would have to do in that stage is a single-minded effort towards improving the governance—governance can improve only when the quality of the board level and the executive level is good. This is entirely in government hands. I don’t appoint my board, I don’t appoint my managing director. Who does those appointments? It is the government. To that extent, it is the onus on the government to find the right people, to man the boards and for the management of PSU banks. This is the first step that has to be done. It may take two years to put the house in order for all these 21 PSU banks, and we need to consolidate some of the PSU banks. We don’t need 20 something public sector banks. But you don’t consolidate when everyone is weak—if you do that, you are selling them very cheap. It does not make economic sense to divest at today’s price. The government is also not in some distress position that they have to sell banks and recover their monies—if I were a private owner, I would never sell my venture in this situation. So, once we are able to put the right people at the top and board level, maybe there is some hope, because, ultimately, you need the leaders to guide you from the current crisis situation, make them stronger over a two-year period, and I think the environment is changing towards where I believe things will be better, going forward—once PSU banks have regained a certain amount of confidence, and once again as performance improves, that would be the right time for some level of consolidation.

In my view, India’s current socioeconomic conditions are not conducive to privatization. Maybe after 20 years you will have that situation where you can privatize. With due respect to private sector banks, you send a farmer or a person with Rs200 or Rs500 in his pocket and get his account opened in a private sector bank, then I agree that everybody should be privatized.

Mundra: I can count seven or eight banks in the public sector, which I can’t name, which have no reason to exist. These banks have been stagnant for some time, they have been shrinking and they have lost their identity—they can get their identities by merging with other banks. I think the time is now ripe for a serious discussion on a bank holding company—whatever be the name of this entity, let the bank company start with a government majority, and this holding company should hold a majority in the banks. Next step, the bank holding companies should do away with the majority in the individual banks, and step two, the government should do away with a majority in the bank holding company. That should be the road map. It might take 10-to-15-to-20 years but as long as there’s a clear road map, there is a clear will, I think this should be the real possibility.

Tamal: The government announced bank capitalization last October. PSU banks got a new lease of life in terms of the stock market reaction to this. Now with all the new developments after that, is this capital enough?

Rajnish: The number of banks that went into PCA (prompt corrective action), they got capital, too. But to bring them out of PCA, we need more capital. I have not calculated how much this will cost, or how much is needed. As for SBI, I can say we are not dependent on government capital as of now to meet our requirements. For the industry, they are definitely dependent on the government, and whatever capital is allotted will have to go to these banks. Yes, the situation on the capital front for PSU banks has become weaker as a result of all that has happened so far.

Mundra: I did some back-of-the-envelope calculations. All I can say is that the capital that is given or seems to be coming would at best be survival capital, not growth capital.

ndian high commissioner to Singapore Jawed Ashraf at the MintAsia Global Banking Conclave in Singapore. Photo: Mint
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ndian high commissioner to Singapore Jawed Ashraf at the MintAsia Global Banking Conclave in Singapore. Photo: Mint

His Excellency, Jawed Ashraf, High Commissioner of India to Singapore: I would like to join this debate and just add one point. Sometimes, when you get into these debates between private or public ownership, you’re actually doing a bit of disservice to the whole debate of how we do the restructuring and improve the situation. I agree with Mundra, and I want to re-emphasize the point that this really is ownership neutral when we are talking about governance. Being in the government, let me give you two examples. Isro (Indian Space Research Organization) and the Department of Atomic Energy (DAE) in India. Both departments are run entirely within the government. Isro’s success in space programme is undeniable, and so is DAE’s success in developing the full nuclear cycles—we are one of the few companies in the world that have done it. By the way, since I handled both ministries for four years, I can say that it was purely because of a different governance structure that these organizations succeeded. Everything is owned by the government, but because there was autonomy and respect for professionalism, there was an absolute hands-off approach to what we did, or what they did, and because there was respect for scientific knowledge, we achieved success. Our IITs and IIMs are government-owned. They have a governance structure that works. The debate is going in the right direction, but we must get out of this short-term, straight, big decisions of whether it is private sector or public sector that works. Both have a role. But with the current economic situation, I think we have to look through, especially those who work in consulting firms. Remember, banks here in Singapore are also owned by the government. What I am saying is that it is also a question of how do we govern our banks. It is not just about the equity. I think part of the change that is desired is not about whether we sell off the shares. And, again, you need to think about who are going to be the buyers, where will you get that kind of equity infusion to buy the kind of stakes we are talking about in all of these banks. I think one point I wanted to re-enforce is that ownership is not a function of performance, and performance is not a function of ownership. Second, the debate must go beyond that in order to make the banks a success.

Tamal: This is a complex debate and this must go on. Both the panellists agree that privatization at this time is not the right step, and at the same time, both of them agree that governance is an issue and there are ways of tackling it. Finally, regulations have to be ownership neutral. I am sure that we can bank on India. We’re not sleeping, we’re not denying, we know what are the issues. I’m sure between RBI, the government and the owner of PSU banks, they are gearing up to do more things. Maybe if the current government comes back with this sort of majority, maybe even bigger reforms will be undertaken. As we’ve discussed, the insolvency code is the biggest banking reform—and if you read through it, our policy is more aggressive than most developed countries. We have GST—that is the biggest tax reform India has ever seen. We can do more and are willing to do more.

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