PSBs: Issues in the way of reform

PSBs: Issues in the way of reform

Question: PSBs are currently in the process of being considered for decentralisation. Discuss the issues in the reform of PSBs.

Governance, management and operational issues of PSBs need to be resolved through reforms

Governance Issues

• Composition and functioning of the board
• Selection of CEO
• Independence of director appointed by dominant shareholder

Operational Issues

• Resolution of NPAs
• Infusion of capital in banks
• Separation of roles of CMD and Chairman and its impact on the bank board
• The setting up of the Banks Board Bureau

Management Issues

• Getting the appointment of bank CEOs right is very important
• Infrastructure financing and incentivisation
• Issue of stalled projects
• Capital infusion

Facts and Stats

• PSBs account for more than 70% of the assets in Indian banking sector

• PSBs need INR 20,000 crore by way of government equity every year for the next 5 years

• IN 2014-2015, new government promised INR 11,200 crore and infused INR 6990 crore in 9 PSBs

• In 2015-2016, Centre aims to provide INR 7940 crore