While the government has provided freedom to banks in many operational areas like HR, interest rates, etc., there still exist some major issues that need to be addressed. They are: Higher shareholding of the government, appointment of top officers, not having the discretionary power to choose different business areas, etc. Such issues have to be addressed immediately due to rising competition and expected consequences of Basel II.
In India there are 19 public sector banks, formed after nationalization in 1969, and the State Bank and its group (8 banks formed under the State Bank of India and Associates act). Nationalized banks have been fulfilling the objectives of nationalization like providing credit to the needy, rural credit and other priority sector targets set by the government. Besides social lending, the emphasis, for these banks, has been on equitable distribution, avoidance of credit concentration and spreading of the branch network to unbanked areas.
In the post-liberalization era, i.e., since 1991, when PSBs sought the government's help for recapitalization, the central government pumped in fresh capital on condition that PSBs improve their performance. While the banks accepted the capital infusion with an undertaking to fulfill the conditions of achieving certain performance parameters, they have not been able to do full justice to the conditions they accepted.
After several years, the government has now announced full managerial autonomy to PSBs, which clearly separates the roles of the government as owners, the Board of Directors of banks and the Executive management to enjoy functional freedom. This measure is aimed at enabling PSBs to have greater operational flexibility and to transact business more efficiently. |
