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Letter to BS: Govt must take corrective actions to save public sector banks

It is imperative for the government to keep itself away from decisions of bank functionaries

Business Standard 

Public sector banks
Illustration by Binay Sinha

This refers to "The way forward for public sector banks" (October 2). Repeated capital infusion by the government isn't really serving the intended purpose because of the requirement for enhanced provisions on loan losses. Being an owner, the government should ensure strict supervision of the functioning of (PSBs) to keep them efficient and credible. The big-ticket loan-related frauds, the divergence in recognising stressed assets, the slow progress of resolution and recovery of bad loans and the likelihood of large loans to stressed sectors turning non-performing are still major impediments in the way of improving the efficiency of PSBs.

The role of the owner is to make the heads and boards of these entities remain effective and deliver returns that match the capital employed. The functionaries in the higher levels in PSBs are often influenced by political considerations that finally contribute to the bad assets. It is imperative for the government to keep itself away from decisions of bank functionaries. Notwithstanding the mergers in the pipeline, the market is not convinced about the capability of the PSBs becoming efficient and deliver expected returns. As a consequence, the price of the equities of these banks is getting bottomed out causing a heavy drain on market capitalisation.

The government must take a holistic view of the present catastrophe and initiate corrective actions to save PSBs, besides giving extensive regulatory powers to the banking regulator.

V S K Pillai, Kottayam

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First Published: Thu, October 03 2019. 20:14 IST