Govt adopts a new approach to bring reforms in public sector banks

The National Democratic Alliance government has adopted a new approach to bring reforms in public sector banks (PSBs), with the finance ministry asking lenders to hold month-long consultations to review their performance and achieve various economic objectives.

Beginning Saturday, branch- or regional-level officials will hold intra-bank meetings and map performance of branches which will be followed up by inter-bank meetings (chaired by PSB chiefs) and ultimately a national-level two-day brainstorming in Delhi.


The Department of Financial Services, under the finance ministry, has forwarded a 108-page dossier to banks, detailing themes around which discussions are supposed to take place among bankers, including nine thematic papers prepared by experts such as Kotak Mahindra Bank Managing Director (MD) and Chief Executive Officer Uday Kotak, HDFC Bank MD Aditya Puri, Chief Economic Advisor K V Subramanian, among others.

The finance ministry wants banks to adopt a “bottom-up consultative process” within and among PSBs. 

The ministry has asked PSBs to capture a set of 42 questions on credit, non-performing assets, Mudra loans and agriculture credit, among others, during their discussions.

Among various questions, bankers are expected to deliberate upon the reasons for a fall in credit to the manufacturing sector between 2014-15 and 2018-19 “when the IIP (Index of Industrial Production) rose from 2.8 per cent in 2014-15 to 4.6 per cent in 2017-18.”

Banks have been asked to give year-wise analysis to ascertain whether there was a significant rise in lending to non-banking financial companies in 2016-17 and 2017-18 when direct lending to businesses — corporate and micro, small and medium enterprises — fell or “did not rise much.”


State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh, in his paper ‘Bank credit towards a $5 trillion economy’, said PSBs will require an incremental capital of Rs 3-4 trillion “to enable Rs 50-60 trillion of incremental lending to manufacturing and services (excluding retail) for attaining a $5-trillion economy in next five years.

In his paper on ‘Corporate Governance in PSBs’, Kotak has made recommendations in three phases: disclosures and transparency, management and accountability, and governance for corporate reforms among PSBs. Among various steps, he suggested similar governance framework for private and public banks, compliance of Securities and Exchange Board of India (Sebi) norms, longer tenure for managements (including review of retirement age), better compensation structure and professionalising PSB boards, among others.

To bolster retail lending in the country, Puri suggested aligning risk weights for retail loans with internationally accepted Basel norms. He further asked banks to invest in retail processes and adopt digital technology.  


Subramanian advocated for a digitised mechanism, on the lines of the goods and services tax network, for screening borrowers and monitoring them carefully. “As the government is the owner of all PSBs, it can mandate the PSBs to share this data so that economies of scale can be utilised,” Subramanian said.

NITI Aayog member Ramesh Chand and Nabard Chairman Harsh Kumar Bhanwala discussed building a robust system of monitoring agriculture credit, requirement of rural infrastructure for credit absorption and pointed to various issues related to regional discrepancies in farm credit and Kisan Credit Cards.

In his paper, Punjab & Sind Bank Chairman Charan Singh has suggested creating a national financial grid, especially in rural areas, and leveraging Jan-Dhan accounts for giving Mudra loans.



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