The real reforms of Public sector banks lie in the ownership structure, remuneration of senior management and effective consolidation. Analyse (200 Words)
Refer - Business Standard
Enrich the answer from other sources, if the question demands
IAS Parliament 5 years
KEY POINTS
· The stakeholders in Public sector banks deserve some certainty about the way forward. Now that the decision has been made, it would be useful for the government to consider the real reforms that PSBs badly need at a time when their share in incremental deposits and lending has been falling steadily.
· The massive erosion in shareholder wealth in PSBs in recent years is a reflection of the failure of the path that PSBs have taken. For example, AU Small Finance Bank, listed less than three years ago, has surpassed Punjab National Bank in market capitalisation even though the latter’s asset book and deposits are many times those of the former. The market capitalisation of Bank of Baroda is also roughly the same as that of the small finance lender.
· The goal should be to let banks get over the restrictions imposed by state ownership such as low pay, political interference, and the worry of being hounded by investigation agencies.
· The government should get cracking on vesting bank ownership in a holding company, whose board should appoint the boards of individual banks.
· The holding company can leverage its capital to inject funds into banks, and shield them from politicians and bureaucrats who meddle with decision- making.
· It can institute a remuneration structure that rewards the performance of bankers, aligning it with the performance over time of assets that they originate.
· The approach to reform, and the sequencing of reform, have been very well laid out in the recommendations of the PJ Nayak Committee. However, the government has chosen to pick and choose clauses without trying to understand the spirit in which the recommendations were made.
