Policy Paralysis Ahoy !

An artist depiction of sleep paralysis

13 lakh crores, that is the NPAs the public sector banks have accumulated. They are not showing no signs of turning good. 4-6 lakh crores is what that the PSBs require for recapitalization and to meet with Base III norms over next few years and it is a moving target, moving up that is. Bank after bank is reporting abysmal earnings. IOB takes the cake. It reported 1500 cross loss last financial year. At the end of First quarter of 2015, it has reported that its NPAs have risen to 16%.of its gross assets from the earlier 10%. RBI feels the asset quality norms are still too lax and are actually encouraging loan default!

The Bank staff have long stopped considering themselves as employees of a commercial organization. They are outstanding specimens of what is called as 'rentier class' in leftist parlance. Right from comparing themselves to Central Government employees and seeking jobs for dependents on 'compassionate grounds' to seeking non-working Saturdays, they have lost sense of the need to compete with the Private Banks. When a close friend of mine who was in SBI in a senior position before he left for private sector employment, talked of his '1980 batch mates' in senior positions in SBI , it sounded like IAS officers talking of batch mates! On the other hand the private banks have really lifted the bar when it comes to technology deployment. The APPs are amazing. They are actually reducing the number of staff at their branches as Branch banking becomes more and more irrelevant. The public sector banks are far from being independent on Branch banking, with the doors literally and figuratively shut ( if you see that their collapsible doors remain collapsed allowing only for a single person entry into the branch one time!). They still have a 10 lakh-per-year-50-year-old sitting and punching branch rubber stamp on the cheque leaves before delivering them to customers!. The customer himself wondering how he can get anything done without taking break from work as the bank is closed on alternate Saturdays now!

Besides this, many banks are headless. The initiative to bring in private sector professionals has drawn a blank;,hardly any senior industry professional has shown interest notwithstanding the Government’s promise to match remuneration with private sector banks. Many a bright banker like my friend have moved on to lucrative jobs elsewhere. For example, the about to be launched Bandan bank has recruited more than 300 top notch professionals from other banks , mostly of the public sector. This is what happened to HMT that ultimately led to the demise of HMT when Titan was started.

What has been the policy response from Government?. Nothing so far, except for providing a measly 7800 cores for capitalization of banks during the current financial year. With Banks requiring 11% of their advances as capital, they are severely handicapped to give fresh loans however sound the creditor is. This is one industry that requires steady infusion to its capital base in a fixed proportion to its increasing business activity.

The elephant in the room is Government ownership. However owing banks as levers of patronage politics means that retaining ownership of banks is an article of faith with our politicians of whatever party or hue. Underwriting private sector losses with public money is the only solution they know of. There are enough innocents who think public ownership of banks is good for economy. They do not understand that they are being robbed to pay off the goons who have bankrupted the banking system. Our investment banking whizkid of a minister of state
Finance says that Government will dilute stake after the public sector banks reach the levels of valuation equal to those of private sector banks! If aunt grows mustache she will become uncle, so goes the saying in Tamil ( and probably most Indian languages). The Indian political authority has lost capacity for corrective action and good governance and it is the biggest risk to our growth story, pulling millions out of poverty and ultimately to our nationhood itself. Welcome to Policy Paralysis NDA edition.