Thursday, September 10, 2015

Loan Melas Land Again


‘Disasters never come singly but in bundles’. This seems to be the position of PSBs in this country at the moment. They are already in the melting pot of nearly Rs. 6lakh crores. Loan melas seem to have come back with a bang – the Mudra Loan melas. It was mid 1970s that Pujari the then Congress Minister started with the loan melas having seen that this is the greatest opportunity to get crowds at no expense of either the party or the government.

It all started when one of the then enthusiastic regional managers of a public sector bank organized such mela at Anantapur in Andhra Pradesh. The Minister was given an elephant ride with the buglers financed under the DRI scheme walking in front to reach the big maidan for distributing agricultural loans, if I recall right in the year 1979. He could see huge crowds in the ground waiting for his honour to arrive. He was amazed for he knew what it meant: loans and votes without the party having to spend for a single vote. Having tasted the meat would the tiger leave it? He ordered such melas throughout the country.  After the banking sector reforms such melas became history. Several of us thought that those dark days would not revisit the financial sector.

Narasimham Committee on Financial sector reforms advised that ‘the pursuit of distributive justice should use the instrument of the fiscal rather than the credit system.’ ‘Directed credit programmes have led to segmentation of credit markets and introduced an element inflexibility in bank operations, ’it felt.

The present government that projects the image of reforms, seems to be the obverse of it when it comes to the PSBs. Now it calls for video conferences of all EDs and Managing Directors on specific days taken by the Ministry of Finance officials. The Ministry feels that as owner it can ask the capital infused banks to follow the instructions. It also feels that as a co-regulator it can impose its own rules and regulations. Narasimham Committee on banking sector reforms advised that the Finance Ministry should remain at arms length from the banks and give the banks autonomy to function. Almost two decades later Raghuram Rajan  and Nayak Committees repeated the clarion call of autonomy, transparency and accountability in PSB operations.

Rajan very rightly mentioned a few days back that the Jan Dhan, ABY and any such accounts introduced by the government should be compensated for the cost of such operations to the PSBs to provide level playing role for the PSBs with their peers in private banks and foreign banks.

Look at the PSBs today: they are facing acute shortage of human resources thanks again to the senseless ban on recruitment of new staff almost for two decades post-reforms. Several experienced bankers would be vacating the key positions. Nobody needs surprised if he sees a person with ten years’ experience becoming the General Manager. Just the other day, when I addressed a group of bankers at a Risk management training programme, they were unable to say how much is our GDP and how many times the GDP their deposits represent. They were at askance to relate the economic growth to banking growth. They are all assistant general managers who within a very short time would get opportunity to rise higher to sit in policy chairs! Human resource management poses a serious risk and the government should address this risk more than holding conferences and meetings and melas.

They will definitely feel timid to response to a dictat from the Ministry of Finance. Professionalism would take a backseat if the government takes to backseat driving in PSBs. Financial stability would be in danger.

It is necessary that the hitherto forgotten sections of the population, rural artisans, rural services, and weaker sections, rural manufacturing units requiring small amounts of credit should get their due share in the credit markets. But there are institutions to take care of them. Why should not politicians who publicly vouch for these sections’ economic progress and social welfare vacate their space in the Cooperative societies and allow them to function as agents of Mudra Bank? Why should not Mudra Bank work with Cooperative societies and regional rural banks first instead of aligning with the big PSBs? It is time that the government leaves its stamp on the development  more strategically and more transparently than now and certainly  the melas are not the route to achieve it. We have to save the country from the impending financial disaster.