Public sector banks have to face political pressure to grant loans to favoured individuals and companies. We saw the same trend during UPAs regime and the trend continues in NDA era as well. Finance Ministry, Bank chief and board members, last but not the least big industries all dash the high hopes of nationalised and other banks pre and post nationalisation. A futile postmortem is done as an eye wash as fruits are already appropriated to the advantage of ministers and the government in power. Bank stocks crash on new provisioning norms by RBI and that is one more retrograde step ruining the economy.
Stocks of seven nationalised banks have fallen after the new provisioning norms have been made public by RBI. Syndicate Bank tops the list of losing stock value by 5 per cent and it is a significant slump in the present circumstances. With respect of 12 top non-performing assets in Banking Industry, banks have to accept 60 per cent haircut following their reference to National Company Law Tribunal. The window dressing in asset classification and provisioning is several decades old practice. Top bosses only gave lip service to the RBI instruction to follow the laid down norms during preparation of annual returns. Though bigger branches were put under central auditors lack of transparency was evident everywhere.
Going by the ruling party’s philosophy of governance, nationalisation often becomes synonymous by providing play ground with political backups, and the public sector turns into a pork-barrel of political patronage. The nationalised banks are no longer an exception to the rule. Some of the PSU Banks have become sitting ducks of power groups in political circle and that doesn’t augur well for the Indian Economy in general and for a developing country like ours. On one side, the deposit rates have started coming down drastically thereby increasing worries of senior citizens as their hard earned money is earning less interest as compared to what they were receiving a decade back. On the other hand, as bad loans pile up at banks, finance ministry seeks to extend RBI deadline on Basel III norms.
The banking world is facing upheaval and it is being reshaped by some powerful forces. Nearly, after a decade of the financial crisis, there are four tectonic shifts that are under way. One is supervisory reform, which has taken banking supervision to the European level and another is regulatory reform, which has strengthened the rules for banks and the most important one is macroeconomic change, which is set to have lasting effects on banks’ business models. Further, the fourth is technological change, which is opening the door to new competitors and might end up redefining the banking business. Both supervisors and bankers are following all these changes very closely, but while supervisors focus on stability, bankers naturally focus on profitability. Nevertheless, we all know that profitability and stability should be two sides of the same coin.
The power to create money affects almost every aspect of our society, so it is worrying that we have allowed it to fall into the hands of banks with no debate in parliament or media. It is time to have a detailed discussion on the ill effects of banking if lumpsum amount are disbursed in one stroke and mass waiver of farm loans by states in recent times after the series of suicidal deaths all over India and the protests that followed.
Over the past two years, we have made good progress in levelling the supervisory playing field but there are still some grey areas and obstacles to be overcome. For instance, we have a regulatory framework that, to some extent, remains fragmented along national lines. If policymakers are serious about creating a NPA free banking , then RBI should play a pivotal role with regular inspection. Stringent measures have to be adopted to tide over the crisis of bad loans. It is right time to adopt a holistic approach in reducing bad loans and NPA level to the minimum. Banks must be offered a free hand and political interference must be curbed during loan sanctioning process..
(The views expressed by the author in the article are his/her own.)
