Express E-Adda: Not ‘enough reforms’ yet in banking sector, says 15th Finance Commission chief NK Singh

Notwithstanding many changes that has taken place over the years, India has not done ‘enough reforms’ in the banking and financial sector, 15th Finance Commission chief NK Singh said on Thursday.

“The ongoing reforms… banking amalgamation programme, which this government adopted shortly after it came power need to be completed in a significant way. We need to have greater stability of shareholders, accord the banks autonomy,” Singh said at the Express E-Adda programme. Space can be provided for new entrants to add competitive efficiency in financial intermediation, he said.

Singh said the closest any government came to privatise public sector banks was the one led by former prime minister Atal Bihari Vajpayee, but he had to abandon the plan due to lack of political consensus.

The issues of public ownership of banks need to be dispassionately debated and policymakers need to look at this with an open mind, Singh had said recently. Post 1991, one sector which has remained comparatively closed has been the banking and insurance sector, which requires deeper reforms, he had said.

“If the government is to continue to have ownership, we need far more significant and decisive bank recapitalisation plan….a higher public outreach will be needed to keep the public sector banks properly and adequately recapitalised,” Singh had said in video address to All India Management Association.

Growth in business and rise in bad loans in the past decade has forced the Centre to infuse over Rs 3 lakh crore in the past one decade. The Centre’s proposed new policy to have not more than four public sector undertakings (PSUs) in each ‘strategic sector’ will apply to the banking space too. This will essentially mean that the number of public sector banks (PSBs) could be brought down to four from 12 now, via privatisation or consolidation.

The government had in August last year announced that Oriental Bank of Commerce and United Bank will be merged into Punjab National Bank (PNB) to create the country’s largest state-run bank after SBI, with a total business of close to Rs 18 lakh crore. Similarly, Syndicate Bank is to be amalgamated with Canara Bank, and Andhra Bank and Corporation Bank will be merged into Union Bank. Also, Allahabad Bank will be amalgamated with Indian Bank. The consolidation exercise was aimed at creating only a few (6-7) but strong banks to support the rising credit appetite of the economy, help reverse a slide in economic growth and cut costs through greater synergy. Each of the amalgamated entity, created in April, has a business of over Rs 8 lakh crore.