ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Bank Privatisation by the Backdoor

The P J Nayak Committee on the governance of bank boards has proposed that the Bank Nationalisation Act and related legislation be repealed. It wants government shareholding in public sector banks to be transferred to a Bank Investment Committee that will be manned by professional bankers. The report assumes incorrectly that ownership determines board performance and that the quality of bank boards, in turn, determines bank performance. The key issues at the public sector banks, in fact, are those related to management.

After some two decades of impres sive growth and improvement in financial performance, India’s public sector banks (PSBs) are under stress at the moment, thanks to a slowdown in growth and a rise in non-performing assets (NPAs). They need a significant amount of capital to sustain growth under the Basel 3 norms for capital adequacy.

The P J Nayak Committee on governance of bank boards in India, constituted by the Reserve Bank of India (RBI), has the standard remedy for all ills in the public sector: reduce government involvement and shareholding and eventually privatise. The committee’s remit was not limited to PSBs but the focus of the report is on these banks. The treatment of governance issues in private banks is rather superficial. This is, of course, not the first committee to advocate the privatisation route for PSBs. That achievement belongs to the Percy Mistry Committee report of 2007, of which little has been heard since.

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