By any yardstick, last week has been eventful for the Indian banking sector. State-owned Punjab National Bank (PNB) announced a record Rs.5,367 crore loss for the quarter ended 31 March.
In his February budget speech, finance minister Arun Jaitley said the government would look at paring its stake in IDBI Bank Ltd to less than 51%. Jaitley’s statement came a few months after his deputy Jayant Sinha had spoken about transforming IDBI Bank “in a manner similar to” Axis Bank Ltd. The government is planning to kick-start its privatization drive with IDBI Bank, a lender that is majority-owned by the government, but culturally tries to mimic a private bank.
In October 2011, when India’s banking regulator freed the interest rates on savings bank deposits, it completed a process which had started two decades back—allowing the market to decide on the rates of loans and deposits in the Indian banking system. However, the “free market” has not benefited the customers—both the borrowers and the depositors—as much as it should have because of an extremely restrictive entry policy in the banking space. There is an inherent contradiction in the coexistence of a free market and a repressive banking system.
Early April, after the first meeting of the Banks Board Bureau at the Reserve Bank of India (RBI) central office in Mumbai, minister of state for finance Jayant Sinha tweeted: “excellent discussions at the Banks Board Bureau meeting today”. Subsequently, it held another meeting, but we still don’t know the exact terms of reference for this bureau. A government release had earlier said that the bureau was being set up to improve the governance of public sector banks.