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Governance in Reverse Gear?

Public sector banks have come under criticism for their lacklustre performance on the profitability front during FY 2014, attributing to their miserable plight to the absence of effective corporate governance. The mounting volume of non-performing assets is causing concern to both the owner and the regulator. The performance of banks in the private sector, particularly of the new generation, by comparison, has been much better.

There are certain sections of lobbies influencing the policy-makers, which plead for total privatisation of the banking sector. They are drawing inspiration perhaps from one of the wisest rulers of Delhi - Mohammad bin Tugluk - who was said to be quick in reversing his decision at any cost. Though the birth of public sector banks was based on political considerations, over the years they have irreversibly changed the banking map of the country. Rural India finds a place in the banking map today due to their efforts. To cite an example, which private sector bank would have dared to go to Lakshadweep islands? It was a public sector bank, which went there in 1972 and opened nine branches.

The track record of new generation banks of the private sector in entering into rural banking is dismal. Even after two decades’ of operations, only 17 per cent of their branches are located in rural areas, while the whole banking sector has 37 per cent of its branches functioning in rural areas. De-nationalisation of banks, at this stage would denigrate rural development.

Mounting non-performing assets of public sector banks is, no doubt, the most undesirable development. But bank managements alone cannot be blamed for this, since deceleration of economic growth has all pervasive impact on the economy. Slackness in corporate management is the other major factor responsible for this. Total professionalisation of the bank boards is the need of the hour. It is necessary to make a review of the norms stipulated for board-level representations.

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