......Rajan will do well to remember what Prime Minister Manmohan Singh told Subbarao before he moved over to Mint Road “In the Reserve Bank, one runs the risk of losing touch with the real world. With your mind space fully taken up by issues like interest rates, liquidity traps and monetary policy transmission, it is easy to forget that monetary policy is also about reducing hunger and malnutrition, putting children in school, creating jobs, building roads and bridges and increasing the productivity of our farms and firms. Keep your ear close to the ground.” Advice that will stand all bankers in good stead, given the interesting times we live in.
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It is worthy to recall what Narasimham Committee 1 &2 said about governance of public sector banks. It desired for significant dilution of the role of government that included even reducing the status of the person in-charge of regulating the public sector banks. The advice is unheeded. As a first step, if the Ministry of Finance reconciles to route any instruction relating to functioning of these Banks through the RBI after its scrutiny, it would remove the ambiguity in regulatory authority over the PSBs.
As rightly mentioned by the author, the shrinking balance sheets of PSBs due to the abnormal rise in the NPAs of corporate entities during the last five years points to the need for refining the credit risk management of banks. At the time of ushering the reforms in 1991, the large NPAs were blamed on the farm and SSI and SBF sectors and government sponsored schemes. When discretion and credit risk management moved on to a higher pedestal and the new sectors - real estate and infrastructure - started turning the direction of portfolio with an eye on speed of delivery through technology as the main driver, the banks got into a situation of desperate and irreversible anxieties that prevail now. Re-engineering of human resources to meet the challenges ahead is the biggest task that stares at the banks. Corporate Governance hardly exists in the manner it is broadly understood while the CEOs read the script when they have to talk about it in public.
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