Prime Minister Narendra Modi on Saturday called upon the banking sector to establish banks that would rank among the best in the world but assured that the government would not force any mergers and any decision on consolidation would that be of the lenders.
“The banks were of the view that when it comes to consolidation, the bank boards will themselves decide whether it is good for us to have any consolidation. This is the view which the government respects…,” financial services secretary Hasmukh Adhia told reporters at the end of a two-day bankers’ retreat, Gyan Sangam.
Promising a hands-off approach and no political interference in the operations of state-owned banks, the PM, however, demanded more accountability from lenders.
Speaking at a brainstorming session aimed at drawing up an “action plan” for reforms in public sector banks (PSBs), Modi told top bank executives, officials and regulators that he was against political interference, but supports “political intervention” in the interest of the people. Modi promised that PSBs would never get “a call from the PMO” that could hit their working, Adhia said.
Calling for an end to “lazy banking”, Modi asked lenders to redefine parameters for success. “For instance, let them prioritise loans to enterprises that will generate more employment,” he said.
"But accountability is essential,” the PM said, adding the government had no vested interest and PSBs can derive strength from this fact.
Finance minister Arun Jaitley, meanwhile, assured bankers that the Centre was ready to protect their commercial decisions as “risks have to be taken” by them.
In the first-of-its-kind retreat, bankers made a raft of suggestions including reducing government’s holding in state-owned banks to below 51%, empowering banks decisions on recruitment and compensation, creating an environment to protect right decisions, minimising interference from CVC, CBI, CAG and RTI related issues, and eliminating market distortions such as debt waivers and interest rate subsidies.
Top bank executives also sought the setting up of a bank board bureau comprising professionals and bankers to appoint and empower individual bank boards. They also asked for the setting up of a bank investment committee -- a holding firm under the finance ministry to hold equity shares in banks, which can be permitted to raise resources from the capital markets for future capitalisation.
“Government is open to bold decisions for professionalisation of the management and autonomy in decision making, rewarding merit, and relooking at the recruitment process at the top management level of public sector banks,” Jaitley said.
RBI governor Raghuram Rajan suggested that banks need to channelise full savings of households into the system so that requisite financial resources for growth could be made available. “There is a need for internationalisation of the banking system. In the short term (0 to 12 months) there is a need to clean up NPAs and then restructure other stressed loans to put the economy back on track,” he said.
(With agency inputs)