Banking Governance

Banking in India is all set to become premise-less and currency-less and this will help curb the black money

Govt 7 point agenda to improve operations of state-owned banks, including
  • recapitalisation,
  • setting up of the Bank Board Bureau and
  • introduction of a framework for accountability.
Nayak committee recommendation:
  • BBB – appointment and government shareholding
  • Diluting government control
  • Incentive linked salaries to top bankers
  • Fiscal repression
  • No bailouts of FCI for political reasons
Indradhanush, the seven-pronged strategy for public sector banks announced by the government is said to be short of some key ingredients to achieve its objectives. Critically examine. (200 Words)
Indradhanush, which is regarded a one of the big steps after the nationalisation of banks in 1970s, is a brainchild of PJ Nayak committee.
The following are the main objectives of Indradhanush:
  1. Appointments: Separating the post of MD and CEO of PSBs and bring a new post of a “non- executive chairman” which is a measure to bring accountability.
  2. Bank board’s Bureau: The top posts of PSBs will be appointed by Bank board’s bureau which will replace the existing mechanism. It will have members,1 chairman,3 officials and 3 experts(2 experts should be in the field of banking sector).
  3. Capitalization: Capitalisation of 70,000 crores in the next 4 years for meeting Basel -III and RBI norms.
  4. De-stressing banks: Presently there is a huge amount of NPAs. An institutional mechanism will be brought to manage NPAs.
  5. Empowerment: Indradhanush has stressed on empowerment of banks. This includes more autonomy for PSBs and less interference from govt side in day to day functioning of banks.
  6. Framework of accountability: For bringing in accountability of banks, govt have decided to bring a new vector to measure the performance of PSBs, KPI(Key performance indicators).
  7. Governance: There will be a CRO(Chief risk officer) to make accountability of the risks in PSBs. Less interference from govt: and appointments of top officials by bank board’s bureau are some of the administrative changes the govt brought.
Even though the above changes are necessary for the PSBs to compete with the private banks in this decade, the following are some of the issues Indradhanush could not answer:
  1. Disinvestment of PSBs: Disinvestment which is a necessary tool of growth of this time, is not mentioned in Indradhanush.
  2. About 80,000 employees are expected to retire in coming two years. And some more are expected to retire in coming years. So , there is an opportunity for govt: to restructure banks, but such a measure is not mentioned.
  3. Even though issue of govt. interference is mentioned in the policy, how exactly it would be implemented is not mentioned.
  4. Regarding capital infusion, whether the govt will infuse money to the PSBs according to their performance is not mentioned. Rather than giving capital to all the PSBs, govt should have given it according to the performance of the PSBs in a year.
Overall Indradhanush is a big step forward in the Indian banking sector. But govt. should have taken care of the aforementioned issues, to make Indradhanush a better banking policy.



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