Banking on indiscipline?
A top executive of a public sector bank is extremely perturbed with persistent complaints from branch managers that the new generation of employees, both men and women, are observed being increasingly casual with the designated areas of their responsibilities. Not only do they lack sense of involvement, but also tend to become a source of tension for their bosses who are saddled with certain targets to achieve within a given timeframe. He, therefore, vehemently argues that a 'significant' level of private participation is essential in public sector banks, so that the tag of 'govt job' and the attendant enabling security back-up that drives them 'crazy and casual' goes away.
This executive cites an example: A manager politely but firmly speaks to his subordinate female employee reporting for work:" You are late again." The young woman, who was confirmed in her job just six months ago, signed the attendance register in a huff and shot a curt reply: "So what, you are also late some time," and walked haste post to her seat, leaving the manager stunned. No one can say how far such a conduct afflicts other institutions too, but the malady looks all-pervasive, possibly affecting the functioning and productivity of each organization.
This executive is confident that much talked about privatization will bring discipline to the govt banking system that continues to horribly suffer the pangs of bad loans. He feels time has come for the govt to dilute its majority stakes and lets the banks break off the shackles of malfunctioning and abusive, reckless giveaways. He recalls banks were brought under govt control when it was considered dire need of the times. However, gone are the days of big controls and licenses in the current state of market economy, for absolute controls breed indiscipline, corruption, nepotism and uncalled for disorder in the management of institutions.
This does not, however, tick off the essential govt control of a reasonable nature, for the govt carries the bounden duty to protect banks' stockholders, noteholders and depositors by ensuring that these institutions observe the principles of solvency and liquidity. But, will it be possible without the adequacy of funds flow to meet liabilities? So, it becomes imperative for the govt to ensure through some dynamic mechanism that banks continually retain their assets in a state of liquidity.
Bad decisions ruin businesses faster than they grow under the impact of corresponding good decisions. Just imagine the govt giving banks money without any restrictive guidelines and necessary controls over its use. Such a situation would essentially result in the banking system going haywire. Respecting the govt guidelines, therefore, the banks have to take sound, businesslike, people-friendly policy decisions for remaining operational. That will simultaneously bring them the opportunity to grow both horizontally and vertically.
No doubt, the present Narendra Modi govt wants quick reforms, but how will that be possible without addressing the basic banking cores of governance (composition and functioning of the board), management (selection of CEO) and operational issues? The operational part involves the resolution of non-performing assets (NPAs) and the infusion of capital in banks. Alarming level of mounting NPAs is a matter of grave concern to the public as bank credit remains the ultimate driver of the country's economic growth.
To be practical, it's better to take stock of the present position rather than rush to where the govt proposes to go. The PM wants a comprehensive overhaul of PSBs, which accounts for almost three-fourth of assets in the country's mired elephantine banking system that is roughly a 89 lakh crore sector. Everyone knows it's not possible to go full scale on reforms right away, given the kind of resistance any divestment move faces in India, both at political as well as employee levels.
That perhaps explains why the govt is not willing to push the idea of privatization straight away. The present strategy seems to be to maintain govt control over banks and gradually improve their performance by making structural changes in their working. This becomes clear from the Finance Minister's plans to meet the banks' funding through partial privatization. The plan to raise some Rs 1.6 lakh crore by selling govt stakes in banks by the time its present term ends, lowering the holding to a minimum 52 %, is a major step in that direction. The govt presently holds from 56% to 84% stakes in 27 banks. It's expected that banks raise capital from market through the retail investor base. But will it really help the banks against their whopping capital needs?
Wisdom, therefore, lies in being practical, focusing on what can be achieved easily and quickly. Fast revival of bank lending and private investment are both essential? For that, working of staff needs to be streamlined, infusing the sense of discipline and commitment within its ranks. Maybe, an intense ‘on job training’ could offer electrifying results. But sure enough, everyone has to contribute significantly if banks have to play a decisive role in India's growth story!