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| FM Jaitley fine-tuning the Budget |
THE PSU banks, which are going through
tough times, must follow the “4D model” — deregulation,
differentiation, diversification and disinterring, the Economy Survey
2014-15 said.
Deregulation and differentiation
because of the high level of inconsistency in operation...
and
performance of public sector banks, diversification and disinterring
implying stricter bankruptcy laws and exit options.
The Economic Survey tabled in
Parliament on February 27 by finance minister Arun Jaitley said that
the banking sector is hobbled by policy, which has created “double
financial repression” — reducing returns to depositors and
misallocating capital to investors due to depressed returns on
assets. This has led to a reduction in household savings.
The government’s report card also
pointed out that there is lack of competition, which is reflected in
the private sector banks’ inability to increase their presence
while there is wide variation in the performance of the public sector
banks measured in terms of prudence and profitability
“There is a lot of heterogeneity even
among public sector banks and you cannot club them under one
category. It is important to factor that while framing policies,”
chief economic adviser Arvind Subramanian was quoted as saying in a
leading daily.
According to the survey, the
requirement of statutory liquidity ratio, a portion of deposits that
banks have to invest in government securities, can be gradually
relaxed, a move that would provide liquidity to lenders.
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