Former Reserve Bank deputy governor N S Vishwanathan on Tuesday said there is a need to separate governance of state-run banks from the government and pitched for doing away with the nationalisation laws from which the executive derives its powers.
Privatisation is a bigger political decision and not an economic one alone, Vishwanathan said, adding that a bank holding company needs to be created first.
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.
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.
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.