“RBI, Finance Ministry members should be removed from bank boards”  

Banks are moving away from the common man


THRISSUR: The composition of bank boards in India has come in for severe criticism, and views that the RBI executives and Finance Ministry officials should be removed from these boards are, of late, gaining momentum.

“RBI and Finance Ministry are by definition supervisors of the banking system and it would be illogical to expect the representatives from RBI and Finance Ministry to supervise themselves as being part of the boards of the same banks,” said Soumya Datta (seen in the picture), the AIBOC national general secretary, while talking to businessbenchmark.news recently on what really ails the banks in India.

The officers’ body has advocated for the appointment of officer directors, employee directors and nominee directors to the boards of banks immediately, and thereby allow them to play a watchdog’s role in the day-to-day affairs of the banks.

Acknowledging the ever-mounting non-performing assets (NPAs) as a tall wall of worry before the banks, Datta said the approach to address the issue falls short of practicality and farsightedness.

“Various guidelines drafted in foreign countries for applying in different circumstances prevailing in those countries are being either adopted verbatim or are being tried for implementation as such,” All India Bank Officers’ Confederation (AIBOC) chief expressed concern while trying to expose the myopic views of the authorities here.

Turning up the heat on the government on the move to effect mergers among public sector banks, Datta said AIBOC will soon launch a nationwide agitation against the proposed merger of Vijaya Bank, Dena Bank and Bank of Baroda (BOB) by involving people from all walks of life.

He said the merger of banks was not at all a solution to address the problems faced by the Indian banking industry. Referring to the methodology followed by PSBs in containing the fast worsening malaise of NPAs, he said there doesn’t exist a one-size-fits-all trick to address NPAs. “A housing loan, an overdraft or an infrastructure project loan needs to be viewed differently, and the provisioning norms also need to inevitably vary with the nature of that asset,” Datta said.

There has been a marked policy shift and a tilt towards protecting corporates during the last few decades. The banking industry is slowly moving away from the common man and he/she has started feeling the pinch in terms of the all-pervading services charges.

All this is happening because the public characteristics of PSBs are insidiously being sacrificed to accommodate the corporate interests at large.

The issue of bail-out of public sector banks is being made out to be a big issue here while the truth negates this. The fact of the matter is that contrary to the popular narrative, Indian banks (predominantly PSBs) have required very little bailouts over the years compared with the rest of the world, according to AIBOC chief.

An IMF working paper on systemic banking crisis covering all banking and sovereign crises between 1970 and 2011 brings out the stark data. The average fiscal cost of bank bailouts across the world was 6.8 per cent of GDP between 1970 and 2011. For the emerging market economies (EMEs), the cost was 10 per cent of GDP, whereas for India, the bank bailout cost was far less than 1 per cent of the GDP during this period as per IMF data. AIBOC has sought the Government to take the NPA menace head-on.

Citing the recommendations of the Parliament Standing Committee on NPA submitted in February 2016, AIBOC invites the attention of the authorities to the salient features of those recommendations.

The need for developing and strengthening a vibrant bond market to finance infrastructure projects was stressed against the banks taking on such funding models as the banks are bound to develop huge mismatches in their assets and liabilities given the short-term nature of bulk of their deposits.

“The government should make the necessary structural changes including revival of development financial institutions (DFI) for long term finance,” Datta said.

The committee had also urged the government to allow infrastructure finance companies (IFCs) to purchase infrastructure projects turning into NPAs and keep them as standard assets; and at the same time desired that there should be separate norms for NPA classification for infrastructure and non-infrastructure loans

Stating that the need of the hour is that government should adequately capitalize the PSBs and reorient the priorities in lending to agriculture, MSMEs and other avenues that will generate employment in the country, the AIBOC chief reminded that the social objective of the banking needs to be brought back and PSBs should be encouraged to expand the branch network into unbanked areas in the country.


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