Vishwanathan, who was head of banking regulation, said the first need is to “divest” governance of the lenders from the government, and suggested doing away with the powers vested with the government under the bank nationalisation laws as a starter. He said having a holding company structure is essential.
“Because of the nationalisation Act giving so much power to the government, it is difficult to do governance. If we can divest governance from the government, half the job is done,” he said, speaking at a seminar organised by SP Jain Institute of Management and Research.
The management institute’s executive in residence Harsh Vardhan explained that public sector banks are entities under an Act of Parliament, while the private sector ones are governed by the Companies Act.
“RBI‘s writ does not cover them (PSBs). Their operational law is the Nationalisation Act, which excuses these banks from many things,” he said, adding the government has to decide if these banks are commercial enterprises or government departments as the governance issues arise from there.
Vardhan said the government and the bureaucracy derives a lot of powers from having control over the lenders, and hence it is very difficult for privatisation, while former RBI executive director G Padmanabhan quoted former governor Y V Reddy to say that 50 years ago, nationalisation was carried out as a political decision, and the privatisation will also have to be a political one.
On the NPA norms, Vishwanathan, who was in RBI when the central bank drafted the February 12, 2018, and June 7, 2019 circulars after the Supreme Court declaring ultra vires, justified the moves as being in the right direction because of the discipline that they helped instil.
He said the apex court had no issue with the one-day non payment leading to NPA clause but the RBI decided to increase it to 30 days to avoid further legal challenges as many constituencies were terming it as too harsh.
Earlier, corporates used to pay up on the 89th day and now they do so on the 30th, Vishwanathan said, stressing that this is an improvement. He pointed out that the newly-introduced restructuring framework also triggers in 30 days.
“I’m not too sure if restructuring is required, but it has to be very tight. February 12 circular also allowed it, but asked for the recognition of the problem. Restructuring with forbearance is the problem,” he said, hoping that the K V Kamath Committee will be able to tackle the problem on a case by case basis.