Former RBI deputy governor says total privatisation is futile and time has come for more branchless banking
Given the second wave of Covid-19 all over the country, non-performing assets (NPAs) or bad loans of public sector banks (PSBs), could cross 18 per cent if there is deterioration in economic activity due to the pandemic, former RBI deputy governor H.R. Khan said on Tuesday.
As per the Financial Stability Report released by the Reserve Bank of India (RBI), the NPAs of the banking sector were projected to surge to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario. The report had warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent. In regards to public sector banks, Khan said the latest Financial Stability Report indicates that NPAs can go up to 16 per cent in severe case scenario but extreme case scenario has not been portrayed this time.
"Given the second wave all over the country, I think the extreme case scenario is something which one has to factor in. So,18-20 per cent NPL (non-performing loan) is not ruled out for public sector banks. "So, systemic risk is something which the government does not want to take upon its shoulder," he said, at a virtual conference organised by PHD Chamber. So, this kind of regular systemic risks could also be a trigger for the decision for privatisation of public sector banks taken by the government recently, apart from resources crunch, he said.
Observing that bank failure would take place irrespective of privatisation, he said that governments have bailed out the financial sector worldwide. In regards to developmental intervention, Khan, a carrier central banker, said PSBs have played a huge role in the financial inclusion programme of the government including the Jan Dhan Yojana. Now, with the digital foundation laid with Jan Dhan, Aadhaar and Mobile, he said there may not be need for so many public sector banks as brick-and-mortar branches are not required everywhere.
Asked about suitable candidates for privatisation, Khan said that if one has to experiment then it could be a combination of a hopeless bank and reasonably good bank. Further prodded, he said, Indian Overseas Bank and Bank of India could be possible candidates for privatisation.
"Don't go for total privatisation and have 33 per cent as a golden share because in any case, you (government) have to underwrite bank failure today or tomorrow if there is a bank failure. You cannot escape whether public or private," he said. Highlighting that PSBs have played a huge role in democratisation of financial services, thanks to priority sector lending, Khan said, when banks were in the clutches of big corporates, there was hardly anyone who could get consumer loans.
Echoing similar views, former SBI chairman Rajnish Kumar said, public sector banks have pushed 90 per cent of financial inclusion, and they have shouldered the responsibility of social banking including the implementation of government schemes.
Lending to the infrastructure sector was majorly done by public sector lenders, and not by the private sector, Kumar said. Adding asset quality cannot be a distinguishing factor between the private and public sector as some of the private sector players too are in bad shape, he further said. He said that if the country has to achieve a faster pace of growth, then the participation of the private sector has to be increased significantly. So, private sector participation in the crucial sector banking has to expand, Kumar added.
Diwakar Gupta, former managing director of SBI, favoured entry of the corporate sector into the banking sector with real-time regulation. There is a difference in perspective, and the private sector runs with profitability as the prime motive while bedrock for public sector banks is accountability, Gupta said.