PM Modi's Reform Mantra Could Shake Up Banking System

PM Modi's Reform Mantra Could Shake Up Banking System

The government will never interfere in the internal working of the banks, PM Modi said at the bankers retreat.

Prime Minister Narendra Modi has called for an end to lazy banking and asked banks to take on a proactive role in helping the common man. He told this to India's top public sectors bankers while addressing a banking conclave over the weekend.

India's top bankers had gathered in Pune to discuss long-pending reforms vital to improving the health of the public sector banks. Besides the Prime Minister, Finance Minister Arun Jaitley and RBI governor Raghuram Rajan also attended the two-day bankers retreat which ended on Saturday.

Top officials of India's public sector banks have recommended the formation of a "bank bureau" to oversee the appointments to bank boards, human resource policies and capital requirements, said Gauri Shankar, executive director of Punjab National Bank and who attended the bankers retreat. This could be the first step in the Narendra Modi government's plans to reform the banking sector.

"Banking reforms are there in the minds of the government and the regulator and things are going on the proper direction," Mr Shankar said.

The first step towards banking reforms could be the strengthening and empowering of bank boards, he said.

The bank bureau could act as a guide to the public sector banks and could be a prelude to the setting up of a bank investment committee, which may help the government reduce its stake in public sector banks below 51 per cent, said Mr Shankar. The government's ownership in public sector banks could get transferred to the proposed bank investment committee. Mr Shankar of Punjab National Bank expects the formation of bank investment committee to happen in around 18 months.

The lenders have suggested reducing government's holding in state-run banks to below 51 per cent. This will free banks of restrictions that come with majority government ownership and also help in public sector banks raise additional capital at a time when the government by itself can pump limited capital into public sector banks due to the fiscal constraints. These banks require equity capital of Rs 2.4 lakh crore by 2018 to meet Basel III norms.

In comments made during the course of the conclave, the Prime Minister also acknowledged the need to provide greater autonomy to state-owned banks. "The Prime Minister said banks would be run professionally, and there would be no interference," said a release issued by the Press Information Bureau on Saturday. Prime Minister Narendra Modi's government last year approved a plan to pare the government's stake in state lenders to up to 52 per cent to help them meet their capital needs.

Campus Recruitment

The bankers also sought leeway in recruitment decisions, particularly in campus recruitment. Stressing on the need for public sector banks to recruit young talent, train, and retain them, RBI chief Raghuram Rajan at the bankers meet said, "The government needs to have a relook at the campus recruitment which at present is banned because of a Supreme Court ruling."

In certain areas like human resources and risk management "we need experts from the market and at the same time we should be allowed to recruit from campuses," Mr Shankar of Punjab National Bank said.

Talent from Private Sector

The government is considering steps to change the compensation structure of chiefs of public sector banks to attract top talent from the private sector, sources told NDTV. The government may look at experts from the private sector for chairpersons in Bank of Baroda, Punjab National Bank and Canara Bank, sources said.

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