Action plan to fix public sector banks

Key Details

The distended levels of stressed assets in India’s state-owned banks have been a big cause for concern

To get a better picture of the extent of the stress, the Reserve Bank of India asked them to identify, recognize in order to make provision for bad loans.

The RBI assured the banks to clean up their books to move forward with a clean slate.

The Budget has proposed infusion into these banks of just Rs.25,000 crore for the coming year.

The FM indicated that the government would find fresh funds should a requirement arise.

The decision to set up a Banks Board Bureau, headed by former Comptroller and Auditor General is a significant move forward is a significant move forward.

The board could yet be an effective mechanism to end political interference in business procedures and decision-making in banks.

The board could yet be an effective mechanism to end political interference in business procedures and decision-making in banks.

An empowered independent bureau could help reset the concept of an arm’s-length relationship in public sector banking.

Once ownership is delinked from management, fixing accountability becomes that much easier.

It is, however, important to ensure that systems are in place to make the autonomous functioning of this bureau sustainable.

The holistic approach to the bad loans problem

  • Letting the sponsor of an asset reconstruction company to hold up to 100 per cent stake in it should spur foreign entities to look at the Indian “bad asset” market as an opportunity.
  • A bankruptcy code is long overdue, and it would help banks pursue recovery action purposefully.
  • A tough regulator and a stingy government appear to have combined forces tacitly to lay the groundwork for possible M&A (mergers and acquisitions) activity in the Indian banking space.
  • It is commendable that there is a concerted effort to clean up the ecosystem to ensure fair play in the banking field.

Leave a Comment

Your email address will not be published. Required fields are marked *