Noting that recapitalisation of state-run banks over the last decade has had little impact on improving their health, industry chamber Ficci on Monday called for their privatisation in the interest of creating “a dynamic banking sector” in the country.
The Federation of Indian Chambers of Commerce and Industry’s (Ficci) demand follows another industry body Assocham’s call on Sunday for the government to surrender its majority control of public sector banks (PSBs) in the light of the massive over Rs 11,300 crore ($1.8 billion) scam allegedly involving jeweller Nirav Modi that has hit state-run Punjab National Bank.
“Ficci recommends privatisation of PSBs. Recapitalisation in the last 11 years has had limited impact in improving the health of public sector banks,” the industry body said in a release here.
“The public sector banks, which constitute almost 70 per cent of the Indian banking system, are saddled with burgeoning stressed assets.”
“The government has already injected over Rs 2.6 lakh crore in the PSBs through recapitalisation in the last 11 years, which has had limited impact in improving the health of public sector banks thus far,” Ficci President Rashesh Shah said in a statement.
“Recapitalisation alone is not a permanent solution and will not be effective unless the inherent issues related to governance, productivity, risk management, talent, customer service, among others, are resolved,” he said.
“Given the continuous pressure on the government finances on account of the weak performance of the banks, privatisation would reduce the drain on the exchequer and the money saved could be used for developmental schemes and programmes,” he added.
Besides the Rs 1.45 lakh crore earmarked for recapitalisation during the ongoing and the next fiscal, PSBs have received around Rs 1.15 lakh crore equity between 2010-11 and 2016-17. During the same period, PSB profits amounted to Rs 1.8 lakh crore.
Most government-owned banks reported combined losses during the last two fiscals on account of the provisioning made for their massive accumulated non-performing assets (NPAs), or bad loans.
The accumulated NPAs in the Indian banking system have crossed a staggering Rs 8 lakh crore, with PSBs themselves accounting for over Rs 7 lakh crore of bad loans.
The Centre has embarked on a two-pronged strategy in this regard. On the one hand, it has brought in the Insolvency and Bankruptcy Code which provides for a time-bound insolvency resolution process. The Reserve Bank of India has already identified 12 accounts adding up to 25 per cent of the NPAs for insolvency proceedings.
On the other hand, the Union Cabinet, in October, approved a Rs 2.11 lakh crore recapitalisation plan for PSBs.
Meanwhile, Chief Economic Advisor (CEA) Arvind Subramanian has also advocated more private participation in public sector banks.
Speaking at an event in Chennai on Saturday, Subramanian said while the government was going for recapitalisation of PSBs, the scrutiny, monitoring and disciplined deployment must be ensured only through greater private participation in banks.
According to him, there should be less public lending to the private sector and the mode to achieve that is to have higher private participation in the banking sector.