‘Only a Res­o­lute FM can Help PSBs Deliver’

PJ Nayak says a govt keen to im­ple­ment his panel’s pro­pos­als can en­sure good re­turns on in­vest­ment

The Economic Times - - Front Page - ANITA BHOIR

A res­o­lute fi­nance min­is­ter can en­sure a new gov­er­nance and ac­count­abil­ity struc­ture for sta­te­owned banks to en­sure good re­turns on the huge amount of cap­i­tal pumped in by the govern­ment, just as any fi­nan­cial in­vestor would have done, P J Nayak, who headed a com­mit­tee on gov­er­nance and re­lated is­sues of such banks, has said.

Nayak, whose re­port was un­veiled on Wed­nes­day, said that if there is no will or de­sire on the part of any govern­ment which owns these banks to carry out changes listed in his com­mit­tee’s re­port, then it is the end. “But if there is a de­sire to do it, then this is the way to do it. We need a res­o­lute fi­nance min­is­ter to en­sure it can be done,’’ he told ET in an in­ter­view on Thurs­day.

The com­mit­tee's rec­om­men­da­tions such as cut­ting the govern­ment’s stake to be­low 50% and a new Bank In­vest­ment Com­pany (BIC) to which the govern­ment will trans­fer its hold­ings in state-owned banks man­aged on the lines of a pas­sive sov­er­eign wealth fund and aimed at en­sur­ing good re­turns on in­vest­ments, em­pow­er­ing the boards of these banks and en­sur­ing they are run pro­fes­sion­ally could be po­ten­tial game chang­ers. Nayak, for­mer MD and CEO of Axis Bank, said it was in the govern­ment's own in­ter­est to make the boards of govern­ment-con­trolled banks more pro­fes­sional. “The govern­ment has put in huge money in these banks and it has earned deep neg­a­tive re­turns no other fi­nan­cial in­vestor would have done it. Do you want this to con­tinue?’’ he asked. Early re­ac­tions to the re­port cen­tre around the po­lit­i­cal will of any govern­ment to carry out this huge trans­for­ma­tion. Nayak, who worked with the fi­nance min­istry in his ear­lier avatar as a civil ser­vant un­til the mid-1990s, pointed to the ex­pe­ri­ence of 1991 when the govern­ment headed by Narasimha Rao and sup­ported by of­fi­cials and tech­nocrats led by the then fi­nance min­is­ter Man­mo­han Singh suc­ceeded in im­ple­ment­ing a spate of re­forms. Such scep­ti­cism may have to do with past ex­pe­ri­ence as in early 2000 when the NDA govern­ment aban­doned an at­tempt to cut the govern­ment stake in state-owned banks to 33% in the face of po­lit­i­cal re­sis­tance and also the fear of loss of pa­tron­age. He held that the tim­ing is op­por­tune, given that banks need a huge amount of cap­i­tal es­ti­mated by some at close to .` 6 lakh crore, bad loans, hu­man re­source chal­lenges, chang­ing de­mo­graph­ics and with a new govern­ment set to as­sume of­fice soon. “We have given the govern­ment a blue­print for cre­at­ing a dif­fer­ent ac­count­abil­ity struc­ture to make that less likely… The po­lit­i­cal re­solve is to get good re­turns from your in­vest­ment,” he said. The com­mit­tee has fo­cussed on the ur­gent need to em­power bank boards and pro­fes­sion­alise the man­age­ments. Nayak said that well-run boards will be able to steer banks away from their present dif­fi­cult po­si­tion. “So, you need a pur­po­sive board. You need tal­ented and skilled pro­fes­sion­als to sit on boards. There are many such people on boards to­day, but if you talk to bankers to­day, such people are small pro­por­tion of these boards. You don’t have in­de­pen­dent board mem­bers to­day, it’s a com­plete vi­o­la­tion of the list­ing agree­ment,’’ Nayak pointed out. The com­mit­tee has out­lined a tran­si­tion pe­riod for the pro­posed changes. “In phase three, boards de­cide on where you want to get talent from. It should hap­pen to all banks, not just SBI. Look at pub­lic sec­tor banks in many other coun­tries where com­pen­sa­tion is bench­marked to the pri­vate sec­tor. You can do this pro­vided you have boards that can do this and provid- ed the boards are em­pow­ered. They should be able to get people from every­where whom they think can get good lead­er­ship in top man­age­ment,” he added.

Nayak said in the cur­rent struc­ture, there are many anom­alies, in­clud­ing sad­dling banks with a high statu­tory liq­uid­ity ra­tio (SLR). The SLR, he said, started as a gen­uine liq­uid­ity re­serve decades ago when it was 5%, which was grad­u­ally raised to close to 25%, only to emerge as tool of fis­cal pol­icy to fund the deficit of the govern­ment routed through the Re­serve Bank of In­dia.

While there are con­cerns about the de­vel­op­ment role of banks in a changed sce­nario, Nayak is of the view that if it is a good de­vel­op­ment ob­jec­tive, it should go through all banks. The one ad­van­tage will be con­sul­ta­tion be­tween the govern­ment and RBI, which will be use­ful. “The in­ten­tion should not be at the cost of de­pos­i­tors to dump obli­ga­tions that are not prof­itable to banks on to them,” he added.

The head of the RBI-spon­sored com­mit­tee is also against putting a


time­line to list­ing for new banks. “If you have some one who wants to grow the bank slowly and cau­tiously, why not? With a great deal of at­ten­tion to risk man­age­ment within three years, he will be able to do very lit­tle. Then, you are ask­ing him to list it in three years, which will mean that the kind of value he could have cre­ated for him­self will not be cre­ated. In such a sce­nario, a good gov­er­nance pro­moter might find him­self “short-changed,” Nayak said.

“The whole pur­pose from a cap­i­tal mar­ket per­spec­tive to list is to cre­ate value for mi­nor­ity share­hold­ers and if RBI is press­ing the pro­moter, you have for­got­ten about the mi­nor­ity share­holder. You are do­ing it be­cause you want the pro­moter to get out of the bank or re­duce his hold­ing. But what about the new in­vestors? There is a lot of asym­met­ric in­for­ma­tion avail­able on un­listed com­pa­nies that mi­nor­ity share­hold­ers do not know... I have never un­der­stood why it should be a reg­u­la­tory con­cern. It’s like a shot­gun list­ing,” he ex­plained.

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