Are Public Sector Banks in India's Crisis Largely a Government Responsibility?

The current state of the public sector banks in India has sparked a debate over who is responsible: the government or the bank employees. While some argue that it is primarily the responsibility of the employees who follow orders from the higher-ups, a closer look reveals a deeper and more systemic issue stemming from governmental oversight and decision-making.

Government's Critical Role in Appointments and Policies

Central to the argument that the government is responsible for the current situation of public sector banks is the appointment of key personnel and the oversight of policies. The Chief Management Directors (CMDs) and executive directors, who hold significant influence over the operations and policies of these banks, are themselves central government employees. They are directly appointed and overseen by the government. Furthermore, the policies that these banks follow are dictated by the government, which means that even the employees are merely executing the directives of the higher government authorities.

This top-down approach means that the ultimate responsibility for the actions and decisions of these banks lies with the government. When problems arise, it is fundamentally the government's duty to rectify the situation and ensure that proper steps are taken. The notion that employees should bear the brunt of the blame is both unfair and impractical given the constraints under which they operate.

Government's Role in Bank Management and Policy

The central government has a direct role in the management and decision-making processes of these banks. This includes the setting of loan policies, which are critical in determining the health and growth of the financial institutions. When the government colludes with corporate entities and the management of banks to provide loans for individual gain rather than for the growth of the country, it sets a precedent that can have long-lasting negative consequences. The result is seen in the rise of Non-Performing Assets (NPAs), which are loans that banks cannot recover from borrowers.

Loans should be provided with the objective of fostering economic growth and development, not for private profit. However, when politics and corporate interests come into play, the long-term interests of the nation and the financial health of the banks are at stake. The blame for the current situation, therefore, cannot be solely placed on the employees, as they are only following the directives and policies set by the government.

Accountability and Oversight

It should be noted that despite the government's significant role, a lack of accountability and oversight contributes to the current crisis. Year-round audits in banks are a testament to ongoing efforts to ensure proper financial practices. However, if these audits are not leading to effective corrective measures, then the fault lies in the systemic framework rather than the employees. Banks should not be solely responsible for policing themselves; there must be a robust checks and balances mechanism in place to ensure that issues are addressed promptly and effectively.

Moreover, the distribution of pay hikes as a punishment for inefficiencies, such as the demonetization or the disproportionate NPAs, is both a superficial and ineffective solution. Pay hikes do little to address the root causes of systemic issues and can be seen as more of a political gesture than a genuine attempt at reform.

Conclusion

The current situation of public sector banks in India is a result of complex and multi-faceted issues, with the government bearing the primary responsibility. The government, through its appointments and policies, sets the course for the banks, yet accountability for the outcomes often falls on lower-level employees. Addressing this requires a systemic overhaul, better oversight mechanisms, and a genuine commitment from the government to ensure the health and prosperity of the financial sector.

The poor employees, who are often criticized for their roles in day-to-day operations, deserve better recognition and support. The misaligned incentives and lack of accountability at higher levels must be addressed, and the financial health of these banks must be prioritized over short-term political gains.

Keywords: public sector banks, government responsibility, bank management