CHENNAI/NEW DELHI: With the PNB scam putting the spotlight once again on the rot in government banks, chief economic adviser (CEA) Arvind Subramanian said it was time to consider majority private participation in public sector banks.
“We need to recognise how much stress there is in the banking system. Bank of Baroda closed down its South Africa operations and now PNB is facing problems,” he said, addressing the Madras Management Association.
While the views of Subramanian, a reforms enthusiast, have not always been in sync with the finance ministry’s, his comments on the malaise facing public sector lenders reflect the resentment that has built up in the government with the state-run players. In fact, the latest Economic Survey, brought out by his team, had opposed recapitalisation of public sector banks.
While the disappointment always bubbled under the surface, the latest scam, which unravelled just after the Rs 1.35 lakh crore bailout package to the ailing banks, has hit a raw nerve among the top echelons. “They have become a drag on the economy. They squander taxpayers’ money, secure in the knowledge that the government will recapitalise them.
This is the biggest moral hazard,” said a senior government functionary. Privatising the banks will, however, require the government to amend the law for reducing its stake or exiting altogether. The law mandates that the government hold the majority stake in SBI and the nationalised banks.