For about a million public sector bank employees, the past fortnight has been extremely hectic. Senior executives could hardly sleep; they were busy video conferencing with colleagues in every state and even district while junior employees were literally on the street, chasing prospective depositors—something never seen in the history of Indian banking. They were put on notice on Independence Day, when Prime Minister Narendra Modi announced the Pradhan Mantri Jan Dhan Yojana as a national mission on financial inclusion and fixed 28 August as the launch date.
When Raghuram Govind Rajan came to India as the government’s chief economic adviser two years ago, everyone warned him about the bureaucracy. “People told me the bureaucracy here will be very difficult to deal with—very smart people but with very different agendas.” Rajan, 51, hasn’t found much truth in that.
Investors rushed to buy public sector bank stocks last week after the finance ministry made it clear that the government would look into corporate governance issues and strengthen risk management in these banks in the aftermath of the bribe-for-loan scandal that hit Syndicate Bank and employees of two other state-run banks who were found to have gobbled up depositors’ money. Both the banking regulator and the government, the majority owner of such banks, now seem to be determined to clean up the system. It’s not an easy job as the major risk, in some cases, is the senior management itself.
The 2013 appointment of S.K. Jain, the suspended chairman and managing director (CMD) of Syndicate Bank, “lacked transparency and smacks of unfair practices,” The Indian Express reported on 11 August.
Amanath Co-operative Bank Ltd, Karnataka’s first scheduled urban co-operative bank, is being taken over by public sector Canara Bank. Amanath Co-operative Bank’s operations were suspended on 6 April 2013 when the Reserve Bank of India (RBI) decided that the bank’s 272,000 depositors would be at risk if it continued operations. After a lot of wrangling, Canara Bank agreed to take over Amanath Co-operative Bank.
The Reserve Bank of India (RBI) on Tuesday left its key policy rate as well as banks’ cash reserve ratio (CRR), or the portion of deposits that commercial banks need to keep with it, unchanged in sync with market expectations, but cut the banks’ mandatory investment in government bonds, or the so-called statutory liquidity ratio (SLR), by half a percentage point to 22%. There is no surprise here, too. This is a continuation of what RBI governor Raghuram Rajan had done in June—paring SLR by an equal quantum.
In cricketing parlance, this is a reasonably good pitch to bat on. India’s consumer price inflation rose 7.31% in June, a 43-month low, and much lower than consensus market expectations.
Now you know why the pile of bad loans in India’s state-owned banks has been rising and why both the banking regulator as well as the finance ministry are upset with many bank chiefs. The official reason behind the growth in bad loans is a faltering economy but everyone knows there is more to it. Yes, there are bank chiefs who are dishonest.