Indradhanush: Same seven colours on a new skyline

Just at the eve of India’s 69th independence day, government announced a series of measures to correct the malaise in Indian Public sector banks. Immediately, talks of big bang reforms followed creating another round of hype and noise. But much was old wine in a new bottle or same colors painted on a new skyline given the name to the reforms.

This govt and its officials have an amazing knack of naming/terming such measures. This one they called it Indradhanush. The Finance Services secretary Hasmukh Adhia explained the logic:

Indradhanush’ is a very interesting term you have coined. What does it signify?

‘Indradhanush’ is a spectrum coming out of one white coloured ray. Just like when you merge the seven colored rays and a single white ray will appear, here too it is a single point objective – to improve efficiency of PSBs. To achieve that, there are seven components -some hard and some soft. Like an ‘Indradhanush’, some colours are dark, some light. There is support being given through capitalisation but there is accountability as well. So, there is hardness and softness. We are giving you support but you will need t o perform. All this put together makes the spectrum very interesting and will achieve one goal.

Hmm.. Impressive coining indeed.  So much so, the govt complimented itself:

The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalisation in the year 1970. Our PSBs are now ready to compete and flourish in a fast-evolving financial services landscape.

Really? What about the measures taken after the Narasimham report of 1991?  Even then the whole idea was to improve the efficiency of PSBs. Just that perhaps it was not seven strategies but several of them. It was during 1991 that one actually tried to undo the entire ownership of banking system by PSBs.

So what are indradhanush’s seven colours (they are actually from A to G and not VIBGYOR colours. This is just too much straight from consulting world (perhaps due to the influence of Finance Minister for State who has spent his career in that world):

  • Appointments
  • Bank Board Bureau
  • Capitalisation
  • Destressing and Strengthening Risk Control measures and NPA Disclosures
  • Empowerment
  • Framework of accountability
  • Governance

All this is hardly anything new and even questionable. For instance take the case of appointments:

The Government decided to separate the post of Chairman and Managing Director by prescribing that in the subsequent vacancies to be filled up the CEO will get the designation of MD & CEO and there would be another person who would be appointed as non-Executive Chairman of PSBs.  This approach is based on global best practices and as per the guidelines in the Companies Act to ensure appropriate checks and balances.  The selection process for both these positions has been transparent and meritocratic.  The entire process of selection for MD & CEO was revamped.  Private sector candidates were also allowed to apply for the position of MD & CEO of the five top banks i.e. Punjab National Bank, Bank of Baroda, Bank of India, IDBI Bank and Canara Bank.  Three stage screening was done for the MD’s position culminating into final interview by three different panels.

Global best practices? In banking? What is that? Who has set them? American Banks? British Banks? I mean all this is so artificial at one end. Just mention the word global which stands mostly for practices in US and at best UK. And then we now clearly know what mess has happened in all these places. So to say you have adopted global best practices means nothing really.

In both appointments and BBB points the stress is entirely on picking right people from top management. This gain means picking people from private sector. It is not the case the PSBs essentially have bad talent. Most staff including top management of new private sector banks came from public sector banks. PSBs at one time were the training grounds. Public sector banks with their useful training program which circulated employees across different roles, gave people an exposure which none of the private sector banks can match. In private sector banks, you join in one department and remain of that department for lifetime. It wasn’t the case in PSBs which actually gave employees a much wider perspective. This really helped private sector banks who got readymade talent of people who knew banking across roles. This is just to say things were not as bad in PSBs as they have become now.

Things have reversed now.    The real change in PSBs will not come from just changing things at the top really. It will come when one can proudly tell his parents/friends that he is joining a PSB on graduating from a top Indian college. Or we have current junior/mid level bankers leaving their private abodes to join the PSB one.  Unless, they can compete for talent for lower rung roles with private sector, things remain the same. Apart from bottom line of balance sheets, one has to also look at bottom line of human resources. This is a huge problem given the perception, image and salaries offered at PSBs.


Then things from C to G have been talked about in the past as well. But after some initial spark things go haywire. Only this time, capitalisation is going to be selective and given to performers. This is a positive move and will be interesting to see how it is implemented.

One must also keep in mind the business cycle which somehow is missed from discussions. The banks are doing badly also because of the sudden reversal of business cycle. If Indian economy and industries were running fine, all these problems of PSBs would have been much lower.  Why just discuss India and its PSBs alone? Look at the several private players in US/UK, sorry global world. It is a mess everywhere. Ownership is just part of the problem. Banks rise and fall with the overall economy.

Most of these ideas in banking to change/improve are as old as banking itself. Govts. after govts have struggled to tame banking as per its needs. Much of the practice of central banking also started for the same reasons. But then each govt/policymaker tries to show how these ideas are different with new wine in new bottle. What is a pretty standard practice in every downturn is really hyped big in India. This govt is obviously special with such repackaging and one has to give them credit for the same..


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