Bimal Jalan: Don’t privatise PSU banks, make them accountable: Bimal Jalan – The Economic Times–14.03.2018—–*****

“I am very glad that we have initiated measures both for capitalisation, reducing NPAs and for ensuring that banks conform to the best standards of monetary policy.”
In an interview with Mythili Bhusnurmath of ET Now, Bimal Jalan, Former Governor, RBI, says it is not a question of public versus private. It is a question of governance methodology and ensuring that PSU banks are held accountable and their performance is fully monitored.
Edited excerpts:
We have received good news on the WPI front as well as the CPI and IIP front. Does it seem that on the economic front the government has a lot to cheer? The bypoll results suggest that on the political front, they are not really reaping the results as yet.
  • Yes, things are improving definitely. Investment is also up. The corporate sector is investing more and these are all positive signs compared with say six months ago.
US President Donald Trump has been making a lot of protectionist noises and increasingly there is talk of trade war. There was a general view that poor export growth was what was holding back India’s growth. Do you think that exports are a huge factor or does India have a sufficiently large domestic market and exports are incidental to the overall growth story?
  • Two are interrelated in the sense that exports are important for India but the most important point to remember is that the protectionism abroad as such does not affect our export potential to the same extent as may be in industrial countries.
  • The reason for it is simply that a) our exports as a percentage of GDP is not very high compared to some of the east Asian countries. That is the part we must remember and exports have to be given maximum advantage which we are doing also in some ways. So, I do not see that the so called protectionism abroad would have that much effect.
  • Of course, it would affect certain types of exports and certain goods and services but I do not think there is any large problem. The most important problem is in the area of immigration policies. So this is a mixed story but I am absolutely sure that we can cope with it.
Are we coming to the end of multilateralism as increasingly the US particularly wants to go the bilateral or plurilateral way. Even though we have a mini-ministerial coming up next week in Delhi, are we setting too much store by it and should we really write off the WTO?
  • You are right in emphasising the protectionism in the US. It is something which has to be prevented because it is the largest economy in the world and in terms of global trade, etc, it has a very important role. The European union has picked up a bit but still it is not functioning exactly the same way as it was expected to function. There you had Brexit. So these are the negative signs. How it develops we have to wait and see.
  • Some protectionism in the US, Brexit, the European Union not functioning as well as it was expected to by now are the issues which we have to cope with. The most important point from our standpoint is that India is not as dependent on trade as some of the other countries. So, the impact is not going to be as strong as in many of the other developing countries.
Even as you  speak about economic recovery, is it time to start worrying that post the PNB ]] fraud, banks are again shying off from lending. Retail lending might still be happening but no banker wants to lend to large projects, particularly infrastructure projects. Is this something we need to be concerned about?
  • Of course, we have to be concerned about the fact that if something like PNB happened, that is the most important issue for us to keep in mind. So far as the banking system is concerned, we were following all international rules. India’s reputation in the banking system was very high. Basel accord and all that sort of thing that we had, following all the international norms in terms of regulating the banks, in terms of cash reserve ratios etc.
  • It is of utmost importance and the PNB scandal has been an eye opener. That this kind of a thing could happen over three-four years and that we were not able to handle it, is one point. Second point is the NPAs have also been high for three-four years and we should have been able to handle that part, but now in the light of PNB fraud, there is a sense of crisis in the banking system. Some new measures have been introduced, bankruptcy and insolvency laws are there. Also, the Reserve Bank has introduced or wants to introduce certain policies which make banks much more accountable.
  • I am very glad that we have initiated measures both for capitalisation, reducing NPAs and for ensuring that banks conform to the best standards of monetary policy.
In a bid to ensure that such things do not recur, is there a price we have to pay in terms of reducing the scope for trade financing? After all, frauds do occur but they are one-off instances and the regulator can’t ban everything. Can it say ban credit cards just because there are some frauds in the credit card business? Shouldn’t we have a more nuanced approach rather than outright ban?
  • You are right absolutely. In the technological age, we have to use technology but we have to make sure that when we are using technology, we are all very careful in saying what we want to say and what we want to do. There is connectivity. What I am trying to get to you is that it is not a question of choosing this or that. The only option that we have and we must stick to is the regulatory and performing system which is transparent, supervised and which confirms to the best rules in the world. That can be done by the way.
  • All over the world, regulators are always chasing the crooks. If I were to focus attention on the IBC, the bankruptcy code that you spoke about. There were high hopes when the government passed that code but the fact is we are seeing most of the cases are stuck in litigation at one point or the other.
  • You are right that our policy framework and the possibility of timely implementation of all the policies that we announced is relatively weak. But let us not get into that. Irrespective of all this, we have performed very well in the past and there is nothing to stop India from resuming or from doing what needs to be done in the banking sector, particularly the financial sector and the greatest advantage that we have is technology, capital and consumer demand as well as everything else that is needed in terms of job creation.
  • The government is also focusing on that and that we should concentrate on places where we are able to achieve what we want to achieve in terms of growth, low inflation, jobs and I do not see any conflict in that part in terms of our resources and management.

In the wake of the PNB scam and of course rising NPAs, there has been a clamour for privatising the public sector banks. I am not in that camp. Public sectors banks answer to a different kind of mandate and it is really not correct to say that privatisation is the answer. There have been scams, NPAs in private sector banks also. What is your view?

  • A very large part of our population live in rural areas and are involved in agriculture. We need public sector banks for outreach and to make it much more accessible to the largest number of population that we have in rural and semi urban and other areas and this can be done by public sector banks. Now, the point that we have to concentrate on is the government system. It is not public versus private, it is the government system of public banks.
  • After the PNB scandal, I hope that we would get into the governance system of public banks and that it is possible to have an arm’s length relationship in governance of public sector banks from say ministries and also RBI, just as we do with regard to private sector banks.
  • Private sector banks are supervised, private sector banks are regulated. So, it is not a question of public versus private, it is a question of governance methodology and making sure that accountability of public sector banks for performance is fully monitored by the regulatory authority.
  • I do not think that we should do away with public sector banks or privatise them because then who will lend to priority sector? Other than public infrastructure, roads, we have rural areas which need financing. For all that, public sector banks are important. But it does not mean that the way we govern our public sector banks is the right way. Why should we allow NPAs to be where they were and ask yourselves how we handled the financial crisis. We had a balance of payments problem, we were in deep trouble but we handled and all through the public sector banks.
  • So, what I am saying is not public versus private that we should concentrate on, it is the governance system, it is the role of the government in deciding what the public sector banks should do. Why cannot we simply have a board which is accountable?

via Bimal Jalan: Don’t privatise PSU banks, make them accountable: Bimal Jalan – The Economic Times

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