Linking the introduction of reforms in banks with restrictions on their functioning is not correct. Substantive reforms of banks, especially the public sector (PSBs) ones, will improve their efficiency and enable them to effectively compete against private and foreign banks. In fact, it is precisely because no reforms have been carried out in the PSBs that they are in dire straits – dealing with under-capitalisation, losses, non-performing assets (NPAs) and facing high operational risks and low productivity. It’s high time comprehensive reforms of these entities are carried out. Sadly, this has not happened despite the problems being faced by these entities.
Merely infusing capital into loss-making entities without substantively reforming them is a short-term measure, a bit like agricultural loan waivers. The merger of PSBs, that is, the relatively strong ones with weak ones, without reforms, will not create strong PSBs. Also, weakening the regulatory systems will not produce strong PSBs.
Arun Pasricha, New Delhi
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