Finance Minister Arun Jaitley has announced that the government will soon cut its stake in public sector banks. The reason maybe the fall in non- performing assets and in profits and market values in these banks. Jaitley’s view was opposed to that of RBI Deputy Governor S S Mundra who said that the ownership of banks was not the point, it was rather governance. However, ownership and governance are difficult to delink. Though Bimal Jalan has said that public sector banks are not in panic, the NPA situation is far worse in them than in private banks. According to Prisal, 85% of banking system weak assets are in the books of PSDs. Data indicate that the effect of ownership cannot be wished away.
Nor is it true that ownership is unrelated to governance. The P. J. Nayak Committee report (2014) throws light on the matter. PSB board table far fewer issue and even such vital matters as financial inclusion and profitability are hardly deliberated upon unlike in private bank. Political interference in PSB is a serious constraint. PSB boards are powerless in the face of such interference. They merely discuss trivial matters. It is almost impossible to recapitalise PSB due the financial crunch. Even that does not grow far. The solution lies in the reorientation of the government’s role from master to investor.