Indian banking sector (particularly the Public Sector Banks) has been in news for all wrong reasons recently, saddled with unprecedented level of NPAs, shoddy service, window dressing of accounts by hiding NPAs, corruption and so on.
The Central government had announced a mammoth Rs 2.11 lakh crore recapitalisation plan earlier this fiscal year. Today, the Finance Ministry has come up with on a banking road map to improve the functioning of public sector banks.
Under the new guidelines, there will be enhanced emphasis on rigorous due diligence, post-sanction follow-up on loans and separate asset management verticals to ensure public savings are untouched. The public and experts have been concerned about and strongly against proposals to use public money for saving failed / failing banks.
As part of the recapitalisation plan, the Central government will provide Rs 88,139 crore into the banking sector by issuing recapitalisation bonds this financial year. This should come as a blessing for the bankers suffering from huge NPAs.
The finance ministry is hard pressed to commit that it will not let any public bank to fail and depositors need not worry about the safety and security of their deposits.
The salient features of the proposed roadmap and my take thereon are as under:
1. Banks shall reorient themselves to support MSME growth. It is seen that banks are more receptive (virtually sold out) to lending to big corporate houses and not to MSMEs which are the actual growth engines for entrepreneurship, employment and production. This should be corrected.
2. Recapitalisation will depend on the basis of the performance of the banks. Very good. Performers should be rewarded and encouraged, laggards should be punished.
3. Banks should not get into all activities, must concentrate on core strengths. Each bank to adopt a policy in accordance with their core strengths. In race to be jack of all, some banks are good at nothing.
4. PSU banks need to identify non-core assets to monetise. Absolute need for rationalisation.
5. Banks to minimise their exposure to big corporate loans to 10 per cent in a consortium borrower and all loans above Rs 250 cr will undergo special monitoring. Welcome step – this should eradicate or minimise the concept of “setting” culture with a particular big bank.
6. Banks to be given capital based on customer responsiveness, responsible banking, credit offtake through technology and cleanliness, MSME friendliness, financial inclusion and digitisation deepening. Welcome.
7. Customers money is safe in banks. They will get their money back if bank is found indulging in fraudulent activities. This is no favour to customers, it is customers’ absolute right.
8. Every Public Sector Bank should promote apps for easy opening of accounts, doorstep banking. Necessary to promote Digital India and Ease of Doing Business.
9. A survey will be conducted by a reputed agency annually which will reveal their performance. Hope the surveyors don’t get corrupted.
10. Breach of any loan covenant will be shared with entire lending consortium as a red flag. Information sharing should help in identifying the black sheep.
Hope these measures bring about transparency and honesty into system and eradicate the chronic corruption menace.
About the author :
Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at firstname.lastname@example.org.