Various incidents in India proves that public sector banking has lack of transparency and accountability.
Government needs to take firm administrative reforms to address such issues.
What are the recent issues with PSBs?
PSBs need equity capital of Rs 2.4 lakh crore (Rs 2.4 trillion) by 2018 to meet Basel III norms.
The top 30 bad loans account for Rs 87,368 crore (Rs 873.68 billion) ie 35.9 per cent of total Gross NPAs of PSBs.
To the collective dismay of the public recent bank scam which involves a public sector bank (PSB) Punjab National Bank is an example. Click here to know more about the scam
The convictions have the scam allegedly pulled off a daring heist of over Rs 110 billion and fled to the US proving the ignorance of PSBs.
Recently State Bank of India, the premier public sector bank, confessed to over-reporting its profits by 36 per cent and under-reporting bad loans by Rs 232.39 billion or 21 per cent.
What are the reason behind such issues?
The apex bank has lack of mechanism to enhance the transparency in PSBs and bank top management and other auditors are usually helping the violators.
The bank’s systems were flawed with responsibility and accountability issues.
Union government has taken various measures like Indradhanush project and Banks Boards Bureau to address such issues but without changing the ownership and control of banks.
It keeps the ownership and control the same and expect changes in systems and top-level staff to deliver a clean, efficient organisation, this involves too many assumptions.
Which leads to corruption, meddling politicians, crony capitalism, regulatory failure and repeated ‘recapitalisation’.
Thus PSBs are in a perpetual mess because of the way they are owned and controlled.
What measures needs to be taken?
To improve the outcome of time, money, and effort simple measures on every issue and every timeframe needs to be taken instead of a generic solution.
If the policymakers were to apply this in the case of PSBs, it would reduce bad loans, improve efficiency, and prevent scams.
Government need to change the ownership of PSBs and pass on the responsibility to the new Private owners to fix the problems and face the consequences.
There is less inefficiency and corruption in private banks because there is inherent accountability.
If there is a scam in private sector banks, it is shareholders alone who suffer and, to a limited extent, depositors, but in PSBs public money is wasted and nation’s economy is hindered.