Banking

Why The Government Needs to Handle the Public Sector Banks Crisis by Staying Away

Ravi Venkatesan, Chairman of Bank of Baroda, recently said in an interview that the government's restrains on PSBs is affecting their growth
Why The Government Needs to Handle the Public Sector Banks Crisis by Staying Away
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Entrepreneur Staff
Senior Correspondent, Entrepreneur India
3 min read

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

The dark cloud of crisis has been looming over the Indian public sector banks over the past few years. With rising NPAs and growing distrust from the people, the banks have been having a tough time. Only recently, the State Bank of India which is the country's largest bank went on to report its first quarterly loss in 19 years.

The government too has made its efforts to keep its control over public sector banks – between talks of mergers and shuffling of CEOs of the banks to make way for a better performance. According to a report by Oliver Wyman, a leading global management consulting firm, declared gross non-performing assets (NPAs) at public-sector banks have risen to at least 6.2 trillion rupees, with an additional 1.5 trillion rupees of restructured standard assets. In total, these represent 14.6 percent of advances, three times the percentage for their private-sector peers.

Ravi Venkatesan Says The Government Should Stay Away

Until now the leaders of PSBs haven’t spoken about the problems of public sector banks, including the government’s incoherence. Well, like we said until now. Ravi Venkatesan, Chairman of Bank of Baroda, recently said in an interview that the government’s restrains on PSBs is affecting their growth.

Venkatesan has been quoted to say that India needs fewer, better capitalized, and better run public-sector banks. He added that what is happening today is privatization by default rather than intent, as public sector banks hemorrhage market share and capital.

The chairman of Bank of Baroda is set to retire next month.

Incurring Huge Losses Due to Frauds

The Indian public sector banks have been riling under the cases of frauds and NPAs, a situation which cannot be ignored any longer. According to reports, 21 public sector banks (PSBs) have incurred losses of INR 25,775 crore due to banking frauds in the financial year 2017-18. A report by the RBI too states that over 85 per cent of bank fraud cases come in from PSBs.

What’s problematic here is that the banks have to fall back on the government for capital as the government holds 51 per cent of the shares.

Venkatesan in the interview states that the government needs to allow the banks to function independently as well, giving them the freedom to choose their own top management and building their own strategies. He added that once they have greater powers over management and decision making, state banks should be able to tackle their bad loan issues more effectively and eventually tap the capital markets to strengthen their balance sheets.

Good Things that Nationalisation Did

Before the first lot of banks was nationalised in 69, Government of India had huge issues with the commercial banks. Government objectives were never fulfilled by then 230 registered banks and many of the commercial banks were failing and filing for bankruptcy, Same was the condition in 1980. In order to save the economy, Government came up with the plan to nationalise  banking.

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