Opinion | Bank reforms must not be held off by this crisis
Regardless of covid impact, stake sales in public sector banks would be a good start. We also need other structural changes aimed at reducing government dominance of this vital sector
Sometimes, it does take a crisis to set things right. Recall the severe dollar crunch three decades years ago that prompted India to adopt free-market principles for its economy. Now, with covid-19 having wreaked havoc, magnifying almost every weakness of our economic system, we must turn our attention to a sector being counted upon by the Centre to keep thousands of enterprises afloat: banking. It remains dominated by public sector banks (PSBs), which have over two-thirds of all assets and seem poised to be hit by a sharp fall in loan repayments after the covid moratorium ends. A majority of their borrowers have deferred their pay-backs, but interest charges have been piling up and business conditions are so bad that a large chunk of them may not be able to meet their eventual obligations. By one estimate, PSBs may need nearly ₹90,000 crore in extra capital this fiscal year to keep going. Some of this could be raised if the Centre were to take the Reserve Bank of India’s (RBI’s) advice and reduce its stakes in six PSBs to 51% over the next 12-18 months. In Punjab National Bank, Union Bank, Bank of India and Canara Bank, the government’s stake is above 75%. In State Bank of India and Bank of Baroda, it is less. Still, in all, over ₹40,000 could be raised at current market levels.