PSBs need to be privatised and regulated: CEA
Chief Economic Advisor (CEA) Arvind Subramanian on Saturday said more public sector banks (PSBs) should be privatised and the sector needed better regulations.
Addressing the Madras Management Association’s annual convention, the CEA, referring to the fraudulent transactions scandals rocking Punjab National Bank PNB, State Bank of India and Bank of Baroda, said both the internal control of the banks as well as external controls exerted by regulators seemed to have broken down.
In the current context the question was “while the internal controls have broken down in the system, for whatever reason, what about the external controls exercised by the regulator and the supervisor? And that is an important question we need to ask, when we think about the regulation,” he said.
To avoid such scandals in the future more private participation should be allowed in public sector banks and there should be more scrutiny on the banking system, he added. Subramanian spoke on the four Rs of the banking system — recognition, resolution, recapitalisation, and reforms — but said there was a failure to recognise the fifth R, which was regulation. He said over the past two-three years, the government had taken steps to recognise the extent of bad assets in the banking system. “The bad assets in the system will be 2030 per cent more than what was recognised at any given point in time,” he said. The CEA said progress had also been made for the resolution of the bad debt crisis and recapitalisation of banks. But, while recapitalising banks one need to ensure that NPAs did not reappear and were managed properly, he said. One must also take a close look at the haircut banks were taking and whether or not it was worth it.