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.

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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 [email protected].