By taking the hard yards on IDBI Bank privatisation, the Government should use it as a test case and proceed with similar rigour in other disinvestment cases. India has a vast swathe of public sector units which are moribund and defunct
lost in the clutter of the Budget speech by Union Minister for Finance Arun Jaitley on February 29, was a singular reform of great import. Jaitley said that the Government was willing to take its shareholding below 51 per cent in the stressed IDBI Bank. Translated, this meant that it is willing to do the unthinkable: Bring in a strategic investor in a public sector bank. To a reformer’s ears, it was Beethoven and Bach merged into one symphony. For the first time since Arun Shourie in the Vajpayee administration, the Government was looking at a strategic sale, and that too in the ‘touch me not’ banking space.
This then begs the question: Does the Government have the stomach and, perhaps, more importantly, the gumption, to take this decisionIJ Privatisation has been a dirty and ugly 13-letter-word ever since that fateful statement issued by left leader AB Bardhan (now deceased), who, in a transformative moment said, “Bhaad mein jaye vinivesh (to hell with disinvestment)”. He changed the very narrative of privatisation in the country in May 2004 when the Congress was busy cobbling up UPA1 with the help of the left parties. That comment altered the discourse in one fell swoop, spooking investors, halting trading and signalled the end of the privatisation experiment in India. Almost unobtrusively, Jaitley brought it back to the table and alarmists in banking unions began the drum-roll of protest and strikes.
In the third quarter 2015-16, IDBI Bank simply fell off the cliff, posting a net loss of Rs2,182 crore, the largest by a long way by any bank in the quarter. When the Governor of the Reserve Bank of India, Raghuram Rajan, in a first as the Sheriff of Mint Street, refused to hide elephants and camels under the carpet, and asked Indian banks to be honest about their non-performing assets and to clean them up by March 31, 2017, most banks came forward to reveal the true extent of the Big C on their balance sheets. The situation was truly alarming for IDBI Bank. Gross NPAs made up for 8.94 per cent of IDBI Bank’s gross advances as of December 31, 2015, higher than 6.92 per cent at the end of September. Its net NPA ratio widened to 4.6 per cent, from 3.16 per cent at the end of September.
The bank, without a doubt, was ailing, and the Government, for a change was alive to the crisis, moved in swiftly to cauterise the open wound. Showing its resolve in selling the bank to the most able-bodied strategic investor, it has suspended and transferred over 100 errant officers of the bank. If this kind of intent had been shown by the Government in the past instead of indulging in open cronyism, then the banking system wouldn’t have been in the blue funk that it finds itself in.
Sequentially, the Government needs to be commended first for deciding to offload majority shareholding to a bonafide investor and then attacking the core of the problem — delinquent officers who are stalling the process. In a veritable face off with bank unions, the Government has transferred 200 employees and suspended 11 key striking members of the bank. In what is perceived as a strong arm action, employees have been transferred all over the country, moving people out of their comfort zones to Guwahati and Delhi.
Remarkably the troublemakers have received short shrift from the Government-owned bank management and rightly so. By not buckling under pressure and by refusing to kowtow to bank unions, the Government crackdown has been all encompassing. When the bank union struck work in the last week of March in protest against IDBI Bank’s privatisation, the old familiar playlist of anti-reformist measures and public sector banking woes began to play out.
What was worse was the whisper campaign using social media. The management and Government by virtue of being the single largest shareholder took exception to some of the posts that were circulated via social media, including a call to withdraw salaries from bank accounts so that IDBI Bank’s deposits were lower at the end of the year. It called for direct and dire action, and for a change, the Government was decisive.
Similarly, some of the employees who accused part of the top management of being corrupt, have been suspended. These derogatory comments which were circulated through social media and on WhatsApp simply could not be condoned. Town Hall meetings attended by the top brass also saw virulent protest. Sticking to its guns and not wilting as Governments normally do, the incument regime is spoiling for a fight on IDBI Bank.
If India is to have a robust and transparent banking system again, recapitalising alone cannot help for it is akin to throwing good money after bad. And recapitalisation is an open ended number, since the NPA problem is virtually like a bottomless dark pit. Alternatively, there are two options before the beleaguered Government —merge with larger banks with better and less opaque balance sheets or sell them outright.
One can argue that if a bank is sick and incapacitated like IDBI Bank, it will only end up debilitating the bank with the better balance sheet, saddling it with additional debt, impacting its profitability, so instead hawk it. l&T Finance Holdings has been trying to get into the retail banking space for some time and is reported to be a suitor for IDBI Bank. By taking the hard yards on IDBI Bank privatisation, the Government should use it as a test case and proceed with similar rigour in other disinvestment cases. India has a vast swathe of public sector wasteland which is moribund and defunct.
Take tranches of 15 Central PSUs which have been losing money hand over fist for say the last 10 consecutive years. By my reckoning, each and every one of them must have assets which can be monetised. The Government has a plan to do this, it stated this in the Budget.
I am saying go beyond this — sell them, find strategic investors, revisit the Arun Shourie disinvestment model of 1999-2004. It will add value not just to the National Investment Fund, but to India itself. By renaming the department of disinvestment as Department of Investment and Public Asset Management, and monetising and leveraging idle assets for generation of resources for investment in new projects, the Government means business. Roll out the plans quickly now.
Show greater alacrity, shrug off the lassitude. In his Budget speech, Jaitley referred to Niti Aayog which would identify Central Public Sector Enterprises for strategic sale. More than two months after the Budget speech, we are waiting for those names, as also the comprehensive approach for efficient management of Government investment in CPSEs by addressing issues like capital restructuring, dividend, bonus shares. While the Government moves slowly; strategic sale appears to be the best route to clean up the ailing Central PSU dust bowl. However, its intent in IDBI Bank is most commendable. Now just go out there and sell it without any fuss.