The two-day gyan sangam in which the prime minister, the finance minister and the RBI governor interacted with bank managements portends well for the banking sector. One significant event at the meeting was the categorical assurance by Narendra Modi that the government would not interfere in their affairs. He cannot be faulted when he expects the banks to follow the best international practices on their own, not at the government’s prompting. There is no doubt that in the past the government interfered in the affairs of the banks, as if they were the fiefdom of those in power. The net result is the huge increase in the non-performing assets of the banks.
That the government will keep itself away from the banks is not sufficient. There should be certainty that the banks are able to meet all their commitments to their stakeholders by providing world-class service. This calls for a total overhaul of the systems and practices followed in the banks. In fact, the ownership pattern needs to be rejigged, so that they can raise the resources necessary for growth from non-government sources. In five years’ time, a large number of senior officials of banks would retire. It is a golden opportunity to induct new staff, who are receptive to new ideas and are not bound by archaic rules and practices. Simultaneously, the banks need to re-engineer organisational structures and processes.
One of the most welcome developments at the gyan sangam was the broad acceptance of the recommendations of the P J Nayak Committee that looked into banking sector reforms. One significant recommendation was related to the setting up of a holding company to exercise the government’s ownership rights in banks. In short, the primary task of the government is to professionalise the banks so that they are in a position to advance loans to the poor and reject the same to those who are out to cheat. As the taste of the pudding is in the eating, the government’s earnestness will be gauged by how sincerely it implements the Nayak committee recommendations.