Though the Government policies towards public sector banks addressed some legacy issues, several fundamental issues remain that need to be tackled. Discuss (200 Words)
Refer - Business Standard
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· With nationalisation in 1969, banking became a bureaucratic system that collected deposits, administered interest rates and disbursed loans as per plan priorities.
· The public sector banks were also used for managing fiscal stress, which, to an extent, was shifted to public sector banks and hidden there.
Legacy issues
· The reforms of 1991 saw a new paradigm in the banking system regarding ownership, regulation and competition. The banking industry was opened to privately-owned banks enhancing competition, while public sector banks were expected to compete among themselves.
· Reduction in the shareholding of the government in public sector banks, however, did not dilute government’s role in governance since they are not governed by Company Law, but by relevant nationalisation legislation.
· Prudential regulation and supervision by RBI was gradually oriented to global best practices.
· The dual control of public sector banks, namely by the government and RBI was not ended, while consolidation of public sector banks took place in an adhoc manner.
· The policy of public-private partnership in infrastructure etc ushered in the new millennium led to liberal use of public sector banks by government to intensify crony capitalism.
Fundamental issues
· In the post 2008 crisis era, all banks in India temporarily benefited from excess or prolonged stimulus and regulatory forbearance.
· The farm loan waivers on a national scale also had an impact on the fiscal-public sector bank interface.
· In 2016, it became evident that public sector banks had greater share of the problems, warranting the injection of additional capital by government. In contrast, private sector banks performed better as per standard indicators.
· The political consensus continues to be in favour of continuing with public ownership and control of existing public sector banks. The owner, regulator, the management and the large borrowers blame one another for the sorry state of these banks, while the tax payer pays for the losses.
· The share of public sector banking is shrinking. That is why there is budgetary support in 2019.
Core issues to be addressed
· There is a need to have a board of directors that commands the trust and respect of the professionals.
· Objective decision on the dual control over Public Sector Banks exercised by the government and the RBI.
· The future of the banks and their professionals be determined by their performance rather than the uniformly applied government policies towards public sector banks.
Anu 5 years
Kindly review. Thank you.
IAS Parliament 5 years
Try to include about legacy issues. Keep Writing.
Shivangi 5 years
Please review. Thank you.
IAS Parliament 5 years
Good answer. Keep Writing.
Chinna 5 years
Kindly review...thank you
IAS Parliament 5 years
Good answer. Keep Writing.
