Moving Indian banking beyond BBB to an ‘A PLUS’ …

Prof. Gurbachan Singh of Indian Statistical Institute says the more we try and change things with Public sector banks the more they remain the same. Appointing a BBB is a positive step but will not change things much. We need to move from BBB to A plus banking.

What is A plus? It is an acronym :-):

Twenty five years ago on 14 August 1991, the Narasimham Committee was constituted to suggest reforms in the banking sector in India. Many changes were made but these have by far and large failed to improve matters substantially. Given the alarming situation of 15% of all State bank loans going bad by 2014 (Sharma 2016), the issue of banking reforms needs to be revisited. 
Recently, the Government of India (GoI) constituted the Banks Board Bureau (BBB) to improve the recruitment of the very senior personnel in public sector banks (PSBs) and to advise GoI on important matters concerning PSBs. While this is an important step, it is unlikely to change the nature and functioning of PSBs very much. There is need for more reforms.
In my view, the GoI needs to take Indian banking beyond BBB; it is time to shift to ‘A PLUS’ – Autonomy, Privatisation, Liberalisation, Un-American banking, and Social regulation.  
How will one apply social regulation with Autonomy, Privatisation and Liberalisation? Social control was abandoned as it was becoming difficult to implement the agenda with private ownership.
And this American banking bit is also partly true. What we just look at is the bad picture created by big American banks. America historically was a hub for small banks given its weird policy  structure which did not allow state banks to move to other states. So, we had many unit banks (with one branch) spread across the country. Likewise we had many small banks spread across which were closed in the name of stability. We could close them as banking was a centre subject. Banking history across countries has its share of similarities and differences. It isn’t easy comparing them. All we can draw is broad narratives.
The problem with nationalisation of banking was a blanket one without looking at individual banks and how they are operating. We could have just nationalised a few of them and let others evolve on their own. But the political environment was such that all we did is nationalise most of Indian banking sector and kill all forms of financial entrepreneurship. Having said that, 12 old old private sector banks continued to serve despite all possible pressures to merge and liquidate.
A blanket nationalisation has now even made it difficult to reprivatise them. There is little doubt that nationalisation in its initial years made tremendous progress in rural and inclusive banking. Before 1969, banking was just concentrated in a few industrial hands who ran the show as they desired.  But like all public policy things, it has had its share of serious unintended consequences as well. All such ideas should have a shelf life and we should review them after the shelf life is over. This too has been missing from our policy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: