NEW DELHI: The outgoing head of state-owned Bank of Baroda, Ravi Venkatesan, has criticised the government’s control over public sector banks, stating in a recent interview with Bloomberg that tight government control makes it hard to attract talent or take the tough decisions needed to address the bad debts scene.
Venkatesan has gone on to add that government-controlled lenders need to consolidate if they are to avoid losing yet more market share to private-sector peers. However, this would be better achieved after the banks get stronger rather than merging weak banks. “India needs fewer, better capitalised, and better run PSBs. But what is happening today is privatisation by default rather than intent, as PSBs haemorrhage market share and capital,” Venkatesan has said. He also pointed out that state-owned banks are “systemically more accident prone” and that the “decline will accelerate” unless the lenders reform.
One way to change this would be to give bank boards more reign in hiring management and freeing them up to decide strategy. Currently, all senior appointments are made by a government-appointed panel.
According to Venkatesan, once they have greater powers over management and decision making, state banks would be able to tackle their bad loan issues more effectively and eventually tap the capital markets to strengthen their balance sheets. At that point, the government should be prepared to pare its stake in the lenders.
Venkatesan’s criticism of the government, rare in the banking fraternity, comes in the wake of a similar submission made by RBI Governor Urjit Patel earlier this year following exposure of the Punjab National Bank scam, when he said that state ownership of the banks impedes supervision. Patel had also brought up the fact that the RBI cannot remove management of state-run banks, nor can it force a merger or trigger the liquidation of these lenders.