‘Lack of freedom in PSBs behind bad loans problem’

Former chairman of the Securities and Exchange Board of India (SEBI), M. Damodaran, has attributed the lack of freedom in public sector banks as one of the main reasons behind the rise in bad loans.

Speaking at an event at the National Institute of Bank Management on Wednesday, he said, “When you start looking over the shoulders of bank management to see the correctness of every transaction... when ownership translates to transactional supervision which you are not tasked with, then you have the problem of ownership.”

“Telephone calls from Delhi to Bombay have, over the years, been at the root of the problems of the public sector banks,” he said, indicating the finance ministry’s interference in the functioning of public sector banks with respect to ‘directed’ lending. Defending the public sector banks, he said privatisation cannot be the solution for all the bad loans issues they faced, and blamed it on their peculiar governance and ownership.

It may be noted that large private sector banks ICICI Bank and Axis Bank are steeped in controversies due to weak corporate governance practices.

‘No to privatisation’

“The answer does not lie in privatisation. The answer lies in the fact that a country as heterogeneous as ours needs a very strong public sector,” Mr. Damodaran said.

(With PTI inputs)