Fi­nan­cial Re­forms Could Take a While: Bankers

Bank chiefs say changes can’t hap­pen overnight and govern­ment and RBI will have to strike a bal­ance be­tween fis­cal and mon­e­tary pol­icy

The Economic Times - - Markets & Finance -

ANITA BHOIR & SAN­GITA ME­HTA

The overwhelming vic­tory of the Naren­dra Modi-led Bharatiya Janata Party in the 2014 gen­eral elec­tions may have brought cheer to the eq­uity mar­kets, but bankers aren’t ready to drop their guard yet as they reckon fi­nan­cial sec­tor re­forms will not hap­pen in a hurry. With a new govern­ment at the Cen­tre, the Re­serve Bank of In­dia gover­nor Raghu­ram Ra­jan would also have to take fresh guard: he will have to fig­ure out the new govern­ment’s mon­e­tary pol­icy stance, apart from dis­cussing is­sues like the new bank­ing li­cence and im­prov­ing the gov­er­nance stan­dards of pub­lic sec­tor banks. “When it comes to fi­nan­cial sec­tor re­forms, we will have to man­age ex­pec­ta­tions. It takes time; can­not be done overnight. The PJ Nayak Com­mit­tee’s re­port on gov­er­nance is about own­er­ship, good gov­er­nance and in­de­pen­dent di­rec­tors — the im­ple­men­ta­tion of all these can­not hap­pen overnight,” said Sunil Kaushal, re­gional chief ex­ec­u­tive of­fi­cer for In­dia and South Asia at Stan­dard Char­tered Bank. The re­cent RBI-com­mis­sioned re­port by PJ Nayak, for­mer MD & CEO of Axis Bank, to pro­fes­sion­alise pub­lic sec­tor banks is sure to test Modi's re­solve at im­ple­ment­ing fi­nan­cial sec­tor re­forms. “The govern­ment needs to have a sin­gle point of clear­ance and ac­cel­er­ate clear­ances of a project; pay­ments that have been stuck need to be re­leased. This will add to the feel-good fac­tor,” Kaushal added. Among the gamechang­ers could be 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 along the lines of a pas­sive sov­er­eign wealth fund aimed at en­sur­ing good re­turns on in­vest­ments, em­pow­er­ing the boards of these banks and en­sur­ing that they are run pro­fes­sion­ally. “There’s a need to pro­fes­sion­alise boards of In­dian banks, and the govern­ment should have a medium- to longterm cap­i­tal­i­sa­tion plan for banks,” said

With a new govt at the Cen­tre, the Re­serve Bank of In­dia gover­nor Raghu­ram Ra­jan will have to fig­ure out the new govt’s mon­e­tary pol­icy stance

Arund­hati Bhat­tacharya, chair­man of the State Bank of In­dia.

The new govern­ment, Bhat­tacharya said, should pri­mar­ily fo­cus on ‘im­prov­ing the ease of do­ing busi­ness’ and also deepen the eq­ui­ties and debt mar­kets to en­sure broader par­tic­i­pa­tion.

“If you look at BJP’s cam­paign style, it was run in a way any CEO would run a com­pany. If you have any dif­fer­ence of opin­ion among lead­ers in a com­pany, you al­ways sit and re­solve it and achieve a com­mon goal. The RBI and the govern­ment would have to do the same and set a goal. They would have to strike the right bal­ance be­tween fis­cal and mon­e­tary pol­icy to achieve growth,” said Shikha Sharma, MD & CEO, Axis Bank.

“Some of the re­forms pro­posed by the PJ Nayak Com­mit­tee re­port on gov­er­nance in banks re­quire po­lit­i­cal will. How­ever, some of the pro­posed changes like in­creas­ing the ten­ure of the CMD and other man­age­ment changes are ad­min­is­tra­tive in na­ture, and can be im­ple­mented. The re­duc­tion in govern­ment’s hold­ing can be done later,’’ Sharma added. She fur­ther said the land­slide vic­tory in it­self has worked to­wards chang­ing sen­ti­ment and sig­nals op­ti­mism. “The govern­ment will have to sig­nal pol­icy sta­bil­ity, demon­strate ad­min­is­tra­tive de­ci­sive­ness and cre­ate job op­por­tu­ni­ties that in it self will do a lot. Ret­ro­spec­tive changes in poli­cies will have to go,” she said.

Cor­po­rate houses are hope­ful that there’s no change in the govern­ment’s stance on is­sues like new bank­ing li­cence. Yash­want Sinha, for­mer fi­nance min­is­ter of the Na­tional Demo­cratic Al­liance, had ear­lier op­posed grant­ing bank­ing li­cences to cor­po­rate houses. “The cur­rent govern­ment is a pro­gres­sive one and, there­fore, I am hope­ful that it would be open to giv­ing bank­ing li­cences to cor­po­rate houses as well,” says San­jeev Ba­jaj, man­ag­ing di­rec­tor of Ba­jaj Fin­serv, which is one of the 25 as­pi­rants seek­ing such a li­cence. The RBI has so far is­sued only two bank­ing li­cences — to IDFC and Band­han — af­ter three years of de­lib­er­a­tions, and both hap­pen to be non-cor­po­rate en­ti­ties. “The new govern­ment should cre­ate an en­vi­ron­ment con­ducive enough for the In­dian Post Of­fice to make it el­i­gi­ble for a new bank­ing li­cence,” said Rana Kapoor, MD and CEO, Yes Bank. HDFC’s Keki Mistry, man­ag­ing di­rec­tor of the coun­try’s largest home loan provider, said, “Just is­su­ing a bank­ing li­cence isn’t enough; there’s a need for stronger banks in the coun­try.” He in­di­cated that the RBI and the govern­ment should re­view the frame­work for en­try into bank­ing space. He added that the govern­ment should have a zero tol­er­ance pol­icy for cor­rup­tion, re­duce tax but im­prove its com­pli­ance, re­duce sub­si­dies but im­prove its im­ple­men­ta­tion.

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