Tuesday, August 18, 2015

Indradhanush: a fortune for PSBs at the end of the rainbow?

The government has unveiled a plan for revamping PSBs titled Indradhanush. One thing is striking: the government is implementing the recommendations of the P J Nayak committee in form but not in content. The Nayak committee wanted a radical departure in the way PSBs are run. Its model for PSBs was Axis Bank, the former UTI Bank in which the government allowed its stake to fall below 51% and let it be run like a private bank, with a professional board and with private sector scales.

Well, it doesn't look as though any of this is going to happen with PSBs under Indradhanush. The centre-piece is the infusion of Rs 70,000 crore over four years, with Rs 25,000 crore being infused this year itself. This marks a turnabout in the government's position on recapitalisation. In its first budget, the government took the view that capital infusion would be a reward for performance.

The departures from the Nayak committee report are striking:
  • There will be a Bank Board Bureau that will make top appointments in PSBs, including appointments of independent directors. But this is not going to be manned entirely by professionals as the Nayak committee wanted. Some reports say half of the six members will be government appointees. One report quoted the banking secretary as saying he will be the sole representative. Either way, the government will make the final call on appointments. It cannot be otherwise as long as the public sector character of the banks continues. I have always thought that the idea of government distancing itself from control of PSUs and PSBs was hogwash- it just can't happen.
  • Two of the five appointments have been from the private sector. But the finance secretary has assured PSBs that hereafter there will be no more appointments from the private sector- EDs at PSBs will be given a chance.
  • Performance-linked pay and private sector pay scales: If this happens, it will be in a restricted way. The basic framework of government, defined by the Pay Commission, won't go away.
  • Bank Investment company: The Nayak committee wanted government equity to be transferred to a BIC with the BIC dropping its ownership in individual banks below 51%. The BIC won't happen in a hurry. And when it does happen, government will not drop its ownership below 52%. That means, CVC and CAG will stay.
So, nothing changes with respect to the UPA? I won't say that.  The government has moved to separate the roles of chairman and managing director (about which I have my reservations). The
appointments process has been more rigorous than what we say in UPA-II.

More in article in Quartz, Slow, steady and sensible: Modi's new approach to reviving banks

1 comment:

K.R.Srivarahan said...

"But the finance secretary has assured PSBs that hereafter there will be no more appointments from the private sector- EDs at PSBs will be given a chance."

It would appear that the policy of utilising talents from private sector is restricted to the top five PSBs. Experiments are normally carried out in smaller organisations and if successful, they are repeated in larger organisations. Finance Ministry is following a counter-intuitive policy.