Privatisation can’t help. We need a Perestroika!

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By simply implanting the government equity with private equity is hardly likely to change the character of public sector banks. Even the objective of the privatization of banks which first started in 1991-1992 during the term of Prime Narasimha Rao is suspect. Was this done to shore up the budget deficit of the government? Or with what purpose was the part-privatization done? In a sense by the Government holding majority in public sector banks has done no one any good. The private equity owners, after all, are not able to influence the future direction of public sector banks because they are minority shareholders. In a sense, therefore, the private shareholders have been done an injustice by provided inefficient and corrupt public sector banks that have developed huge NPAs which are a shame to the entire Indian banking system. Some of the questions that need to be answered before we consider are as follows.

If public sector banks are privatised will they come with the baggage of current employees?

The public sector banks come with their own  hire and fire policies, unlike the private sector banks. Employees are paid less than private sector banks and there is a reason to believe that they are also less efficient. In the public sector, there is no fear of losing your job as a result of non-performance. This makes public sector bank employees more careless. Public sector banks employees are often unionized, creating one more hurdle in any effort to discipline them. This becomes another deterrent for public sector bank management to drive the efficiency of employees and challenge them. Celebi a Turkish firm which was interested in the acquisition of Air-India’s ground services subsidiary, Air India Air Transport Services, said that the employees would diminish the value of the company for acquisition. Celebi’s Board member Cana Celebioglu told the media, “If they (the government) are asking maximum price (for Air India), but asking us to keep the old personnel, then it will not match. The value of the bid will be lowered. Not just keeping the personnel, but also their indemnity is an issue.” She is also known to have said, “At the moment, they have their own way of training,dealing with their and we have our own standards”.

The Hindu Business Line reported last year that “Only 9 out of 26 PSBs surpassed the industry average of Rs 8.1 lakh profit per employee in 2011-12. The top five PSBs with above industry average profit per employee: IDBI Bank -Rs 13.20 lakh, Bank of Baroda – Rs 12 lakh, Corporation Bank – Rs 10.90 lakh, Indian Bank-Rs 9.30 lakh), and Andhra Bank – Rs 9 lakh.” This is in spite of the fact that 75% of bank deposits in the banking sector are with the public sector banks.

What will happen to the baggage of  NPAs in public sector banks?

It is a well-known fact that large net performing assets of public sector banks as a whole is weakening the banking sector. While some private sector banks also have large NPAs, they don’t overall match the NPA’s in the private banking sector.

 

Public sector banks had bad loans of Rs 8.4 lakh crores as of September 2017. The government had announced last year a 2.11 lakh crore re- to pull out public sector banks from the current mess they are in.

Bad loans in the public sector banks are common because of bad risk assessment, bureaucratic and political interference, and the corruption as proven by the Nirav Modi scam of Rs 11,300 crores. Of course some of the private sector banks also have large NPAs.

SBI Chairman Rajnish Kumar’s assertively told the media today, ” If the private sector is all about bad governance, then tell me which public sector company is NCLT ( National Company Law Tribunal )today”. But private companies don’t get bailed out by the government if they fail. And the government will not let public sector banks fail only because they are owned by the government. Left to their own devices one is not sure what would happen to public sector banks if they were not backed by the government.Change of ownership does not change essential weaknesses of public sector banks

Bad service, lagging technology, number of branches, low charges for bank transactions, low profit per employee, high NPAs are not something that can be corrected in the short term.There needs to be a basic change in the way that public sector banks are functioning today.

And that means not a privatisation but a perestroika. A revolution of change. There has to be a deep internal change in the way public sector banks think. They have to rid themselves of their public sector baggage before they are privatised. Otherwise, the private sector as the new owner of equity in these banks will just be saddled with all the old difficulties and hurdles. A perestroika or a reform program is required to change public sector banks before they can move to private ownership.

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Prabhakar Mundkur has spent 40 years in advertising and worked in India, Africa and Asia. He is currently Chief Mentor with HGS Interactive a part of HGS in the Hinduja Group. He is on the advisory board of Sol 's Arc (solsarc.org ) an NGO dedicated to special education for intellectually challenged children. He is also a member of Whiteboard ( whiteboardindia.org ) which supports senior management of NGOs in financial management, PR, Communication and HR through pro bono expertise.

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