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
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.