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Eternal support for capitalisation of PS banks

The NDA II government has initiated action against eight chairmen and managing directors of public sector banks finding serious irregularities associated with them. These relate to several questionable actions like spike in NPAs' bad recoveries...

IE has been pointing to the deficiencies in the system of thrusting CMDs and EDs on banks on industry- wide seniority. In such a system one noticed an ED of a bank posted as the CMD of another over

limited tenures of a maximum of five years or retirement earlier on superannuation. IE has pointed to unsavoury practices by the experience of Indian Overseas Bank. This bank had for years the CEO thrown up from the ranks accumulating the work culture of the bank as also its clientele. Those brought from outside took time to find the roots. Ambitious bankers like M Narendra used the position on self-promotion. These included carrying the favour of the Union Finance Minister, the Minister of State for Finance, and the deputy governor Reserve Bank. The bank even celebrated its founder’s day in the capital. New publications on the history of the bank were produced. Like M Gopalakrishnan of Indian Bank earlier, credit was dispensed liberally. It should not, therefore, be surprising that the bank leads in the matter of NPAs. The second quarter results show a staggering 29 per cent increase.

There are reasons to suspect lapses just due to suspicious deals too. A chartered accountant specialising in banking deals narrated this incident:  sick company with huge bank debt sought the assistance of this chartered accountant. There was accumulated debt of around Rs 10 crore. The CA established contact through some intermediaries with a high profile politician having close links with the North Block. A deal was struck, whereby a settlement was made for less than half the amount due. A hefty fee was paid in cash through carefully delineated channel to this high profile politician. The CA said that such settlements were legion. The powerful Congress politician had huge incomes on such settlements, impoverishing the banks.

Bank chairmen adapted the noblesse oblige policy and expected due favours from the boss at the North Block. The appointments of chairmen of banks were done on an arbitrary manner through an opaque process as happens in appointments of vice chancellors of state  - run universities in Tamil Nadu.

The NDA government has announced a transparent system in the selection and appointment of chairman and executive directors of public sector banks. This needs to be commended.

Yet another welcome step by the Modi government is the plan to offload shares in excess of 51 per cent. In the present boom in the stock market, such a measure can help banks raise the needed resources for increasing the capital in accordance with the Basel norms. It is unacceptable for public sector banks to look for the government to capitalise them eternally.  Large private banks like HDFC and ICICI raise the needed capital on their own. Modi would do well to proceed with the plan to reduce state ownership to 51 per cent, to start with and progress to 26 per cent in due course. In this process he should ensure that such large institutions would stand on their own.

 

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