1.Revisiting the idea of public sector bank (Live Mint)

2.Curbing the fire tragedies (The Hindu)

1.Revisiting the idea of public sector bank (Live Mint) 

Synoptic line: It throws light on the issues and solution with respect to revitalize the banking sector. (GS paper III)


  • Witnessing the deteriorating condition of Public Sector banks, we must accelerate recoveries from non-performing assets, recapitalize public sector banks, and introduce reforms that will increase the efficiency of these banks.
  • Hence far reaching reforms are needed for the sake of public sector banks (PSBs)

Condition of banking sector

  • The dominance of public sector banks was supposed to have lent the Indian financial sector unique stability in an unstable world. All this is now worth remembering at a time when the state of the Indian banking sector still predominantly owned by the government is the single biggest risk to economic stability.
  • Bank nationalization did have its historical role, especially the financial deepening in the 1970s as a result of the expansion of the branch network. The result was higher savings that created the conditions for the acceleration of economic growth after 1980. But the damage done was also immense.
  • Even as the Indian central bank and the finance ministry struggle to deal with the stock of bad debts that has clogged the banking system, it is worth kicking off a debate about what needs to be done to avoid a repeat of the current mess.

Suggestion to improve the performance of banking sector

  1. Government ownership of the Indian banking sector needs to be drastically reduced. Reserve Bank of India (RBI) deputy governor Viral Acharya boldly asked in a speech as whether Indian banks need to be privatized. Bank privatization is a worthwhile project for the government to follow. The starting point should be reviving the proposal tabled in Parliament by the Atal Bihari Vajpayee government to bring down government holding in public sector banks to 33%.
  1. If reducing government equity below 51% is not feasible at present, we should at least experiment with the halfway house suggested by the P.J. Nayak committee, of vesting the government’s shareholdings in public sector banks in a separate holding company, and limiting the finance ministry to deal only with the holding company on policy issues. The individual public sector banks should be free of finance ministry control and become board-managed entities.
  1. The best solution is to create a new government institution the so-called “bad bank” to which the public sector banks transfer their large problem assets at a realistic price, leaving it to the new entity to handle recovery. Realistic pricing of the assets transferred is absolutely critical, since otherwise the hole in the balance sheets of banks will simply be transferred to the new institution. It should remain in the books of the banks, and can then be recapitalized appropriately.
  1. India needs a more diverse financial system so that banks are not burdened with tasks they are not suited for. The current mountain of bad debts can at least partly be explained by the pressure from New Delhi during the tenure of the previous government to fund large infrastructure projects as well as generally push lending at a rate that was far faster than the underlying growth in nominal gross domestic product. The result was a credit bubble that later popped.
  1. Government needs to back the RBI in its quest to build a diverse financial system through the growth of finance companies, specialized infrastructure lenders and the corporate bond market.
  1. Government should allow new private sector banks to bloom. Privatization of public sector banks will necessarily be a slow process. It requires legislative change. Investor interest in many of the weaker banks will most likely be absent. And most public sector banks trade at discounts to book value, so the government will in all probability come under attack for selling at low prices.
  1. The government should thus shift its attention away from the current enthusiasm for public sector bank consolidation to promoting bank competition through the creation of new private banks. Such privatization by stealth needs to be promoted even as the bigger battle for public sector bank privatization is fought.

Mission Indradhanush for Banking reforms

  1. Appointments

The government will be hiring bankers from the private sectors to head PSB banks.

  1. Bank Board Bureau

The government will set up a Bank Board Bureau as a watchdog for PSUs’ performance. The Bureau will monitor the key performance indicators of state banks.

  1. Capitalisation

The government has already announced its plans to capitalize state banks by Rs 70,000 crore over the next four years.

  1. Distressing

The government will concentrate on distressing the banks’ bad loans 

  1. Empowerment

The government will strive to make it easier for PSBs to hire. PSBs have all the freedom, but they want to recruit at the middle level; they are already free to hire on contractual basis.

  1. Framework of accountability

The government will be coming out with a framework to make PSBs accountable.

  1. Governance reforms

The government will reveal ‘Indradhanush’ plan to revamp PSU banks

Way ahead

  • Looking ahead, we cannot avoid serious banking sector reforms if we want the public sector banking system to become more efficient. In this context, reducing the government equity below 51%, and attracting some strategic investors, would be a very major step. It will not only reduce the pressure on the budget to provide funds for recapitalization, it will also set the stage for a more commercial orientation for public sector banks. This is critical if public sector banks are to compete more effectively with private sector banks.
  • All this needs to be supported by a robust regulatory regime that can identify problems as they emerge rather than when they can no longer be hidden from view. The Indian central bank deserves credit for forcing banks to come clean in the asset quality reviews, but it also deserves criticism for not being able to spot the problem earlier.

Question: What systemic changes can be introduced in the banking framework to make them more responsive to emerging demands of India?

2.Curbing the fire tragedies (The Hindu) 

Synoptic line: It throws light on the recent fire tragedy and lax implementation related to it. (GS paper III)


  • The loss of at least 14 livesin the fire in a Mumbai rooftop restaurant on Thursday night must compel a relentless campaign for safety in buildings. Earlier this week, in another tragedy in the city, at least 12 migrant labourers were killed in a fire in an industrial area.

The massive catastrope

  • This is a catastrophe that can befall anyone, which is why the fires in the upmarket building in the Kamala Mills compound and the snacks shop in Saki Naka in India’s financial capital need to become examples: of fixing of accountability of owners, managers and official agencies; punishment for those guilty of breaking rules; exemplary compensation for families of the dead and for the injured; and zero-tolerance enforcement of safety requirements. It should sting the conscience of governments that they learnt nothing from the Uphaar cinema hall firein New Delhi in 1997 that killed 59 people.
  • In that episode, the exits had been blocked by unauthorised seating. An impartial inquiry is needed to determine what building and other rules were violated in Mumbai, and to identify the officials who allowed them. It would be wrong to categorise deliberate acts as instances of mere negligence. Those responsible must be prosecuted without leniency.

Managing the fire incidents

  • Assessing a fire professionally involves an inquiry that focusses on established construction codes: whether the possibility of igniting it was actively reduced, whether provision was made for controlling the spread of fire and smoke, whether the design enabled occupant escape and firefighter access, and whether the structure was built to avoid collapse.
  • The inquiry ordered by the Maharashtra government must produce a public report on all these parameters. It must be followed up with meticulous prosecution. Given how the Uphaar case played out, it is important to see that the guilty do not use every device available to prolong the judicial process.
  • It would ill-serve the cause of justice to the victims if the judiciary takes a lenient view of such a crime. The urgent need is to make examples of violators, invoking the most stringent provisions. Long as it has been, the struggle waged by the families of Uphaar victims who came together to form an association is in itself a commendable effort that has exposed the indifference of the executive.

Way ahead

  • The absence of a strong law of torts accompanied by a slow criminal justice process and rampant bureaucratic and political corruption have contributed to the brazen violation of building norms and a system of special schemes to regularise such death traps for a fee. It is wrong for courts to take a benign approach to such blatant, complicit measures. On the other hand, they should be concerned that their orders issued to ensure public safety road safety is one example remain mostly on paper. It should worry us that the lives of Indians seem to be of little value.

Question: What are the urgent actions that are needed on the part of govt. to tackle the incident of fire related tragedies?