India’s public sector banks (PSBs) have, for some time, been slowly approaching their do-or-die moment.
Much of what will happen depends on how well the Narendra Modi government follows through on reviving the fortunes of a sector that has become a shadow of what it once was.
A study of the present government’s strategy on reforming PSBs lays bare a largely amateurish approach to dealing with the fundamentals of the financial sector so critical for keeping the economy running.
Its bumbling banking strategy has left all stakeholders confused and confounded, and most likely will leave the PSBs benumbed for at least two years.
Consider the three measures unravelled with great fanfare by the government in the last two months.
In early August 2019, a document was sent to all state-run lenders, calling for a humongous amount of data at short notice for what was called a programme of ‘Multi-level Consultation and Ideation’. This would be followed by consultations at three different levels.
When this process had just begun, on August 30 came the second decision of merging of ten PSBs to form four larger PSBs. As a follow-up to this, and to facilitate integration, town hall-level meetings of executives and staff of merging and anchor banks were set in motion.
Just when this exercise was on, on September 24, the Ministry of Finance (MoF) directed the banks to organise customer outreach programmes (COPs). On October 4 and 5, banks organised the first round of such COPs.
Sit down and discuss
The multi-level consultation and ideation programme was proposed as a brainstorming exercise involving field-level officials of PSBs to firm up their role in contributing to making India a $5-trillion economy by 2024.
The exercise was to be undertaken at three levels. In the first level, branch and regional heads were to deliberate on August 17 and 18 in about 1,700 groups all over the country. In the second level, scheduled for August 23 and 24, state-level bankers’ committees and zonal heads of PSBs would meet in about 30 groups. At the final level, sometime in early September, the CEOs would interact with a team of policy makers led by the finance minister, Reserve Bank of India (RBI) and diverse domain experts; presentations and discussions on serious policy issues were on the agenda.
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On August 9, the MoF’s Department of Financial Services (DFS) gave PSBs the direction to start the exercise with an elaborate questionnaire, along with discussion papers prepared by experts, running into 108 pages. The document called for historic data related to several parameters from bank branches over a period of five years, from 2014 till 2019. Filling up the questionnaire on a range of lending and non-lending activities undertaken by the branches was very cumbersome; the time frame was also very short.
Despite the hiccups, the first and the second phases of the exercise were undertaken as scheduled. The government and the CEOs of PSBs hailed it as a unique exercise never attempted before.
SBI chairman Rajnish Kumar was on record saying, “This is for the first time that such a massive exercise is being conducted in the banking sector. The idea is, at the branch level, how to motivate employees, take their feedback, and how do we align the public sector banking system with the national banking priorities.”
Before the end of the exercise, though, came the finance minister’s announcement of August 30, shifting the focus to mergers.
New round of bank mergers
With Nirmala Sitharaman’s announcement on the merger of ten PSBs to form four larger banks anchored by Punjab National Bank, Union Bank of India, Indian Bank and Canara Bank, the earlier exercise went into limbo.
Examining afresh the pros and cons of the new round of mergers is futile, looking at the receptivity level of the government. When a massive exercise was already on to sensitise branch officials about the need to align PSBs with national priorities and thereafter, through the inputs generated during the consultative meetings, a long-term strategy covering a host of issues was planned to be drawn up, the merger announcement was a spoke in the wheel.
Despite the enormous amount of man hours of branch managers already spent in the first meeting held on August 17 and 18, and another on August 23 and 24, the agenda of reforms remained only work in progress. One estimate claims 150,000 managers participated for two days across the country.
Following the merger announcement, the top executives and CEOs of each PSB had to shift not just gears, but their entire track. They were to organise and address a series of town hall meetings to apprise staff about the changes and set up inter-bank coordination committees to work out the nitty-gritty of integration. The respective bank boards also had to meet to formally endorse the government’s decision. The work related to the actual integration has yet to take place, as there are ticklish issues of human resources and systems and procedures. Bank unions, which are opposing the mergers, have directed their members to stay away from such meetings.
As the momentum of the work related to the merger was picking up came the government’s instruction to conduct COPs at short notice.
Helicopter money camps
While banks are struggling to come out of the rut of non-performing assets, and the economic slowdown has adversely affected retail lending, the government, on September 24, directed PSBs to hold loan melas targeting the retail sector. Rechristened as customer outreach programmes, these jamborees were to be held at very short notice at 400 centres all over the country.
PSBs were reportedly advised to grant 500 small loans at each centre to MSMEs and agricultural entities and for the purchase of cars, two-wheelers, housing and education. The first of such programmes was held on October 5 and 6, covering about 200 districts. The next round is scheduled between October 21 and 25, covering another 200 districts.
Like several large corporates, the MSMEs are in pretty bad shape, with units in several industrial estates closing down temporarily or permanently. Where will the bankers find them? Similarly, small- and medium-sized farmers are under severe stress. Many bank managers known to this writer shared frustrations. Even if they offer loans, the borrowers are not ready to risk it. Where pending loan applications were expedited and applicants were assured that formal sanction letters would be given at the COP, applicants did not turn up. Neither were they willing to borrow, nor would an assurance of sanction enthuse them to restart a shut unit or set up a new venture.
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The COP exercise itself was an attempt at micro-management by the MoF. It is evident from the tenor and the series of directions given in the DFS’s letter of September 24 to PSBs. To cite a few examples, the letter gave the time of the meetings, the methodology to organise the press meets and the publicity strategy. It looked as if the PSBs were extended departments of the DFS. That is hardly a testimony to improving corporate governance!
Bank managers and executives were mandated to undertake the COPs when their to-do lists are already full. And with three different mandates that are not complementary, resulting in the rapid change of tracks, the momentum of reforms is at the risk of derailing.
What should be the focus?
Confidence cannot be created by jamborees when everywhere around you there are dark clouds. If the financial sector has to complement the efforts to revive the economy through easy and simple access to finance, the government should focus its energy on the strategy needed.
An effort began in early August, but with the mergers that was put on the back burner. And the latest exercise on customer outreach has exposed the government’s inability to lay out a clear strategy for reforms related to PSBs like governance, performance improvement and NPA resolution.
The much-touted Indradhanush package of reforms from 2015 was hailed as a harbinger of change, but no enduring measures were seen during the four years thereafter. The MCI of August was expected to introduce a new system of consultation with the stakeholders.
The mergers and COPs have pushed real reforms to the background. Such bumbling measures only help divert the public’s attention, and simultaneously demoralise the already confounded staff in PSBs.
T.R. Bhat was joint general secretary of All India Bank Officers’ Confederation from 1995 to 2009.