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27 March 2017 Editorial

 

27 MARCH 2017

A timely step

 The Finance Ministry’s unequivocal missive to 10 state-owned lenders to submit time-bound turnaround plans, or forsake any further capital infusion from the government, is a small yet timely step in the right direction. As the Reserve Bank of India had lagged in its last Financial Stability Report, risks to the banking sector remain worryingly “high”. The continuous deterioration in asset quality, especially at the public sector banks (PSBs), has led to low profitability and substantial value erosion to the principal shareholder — the government. As the RBI’s report pointed out, PSBs saw the proportion of their gross non-performing assets to total advances almost double in the 12 months through September 2016 to 11.8%. That the Ministry has identified 10 of these PSBs to administer a dose of tough love suggests they are the ones most in need of urgent corrective action. In fact, RBI Deputy Governor Viral Acharya told bankers in a speech last month that the problem of bad loans has come to such a pass that, “we simply don’t as a society have any excuse or moral liberty to let the banking sector wounds fester and result in amputation of healthier parts of the economy.” This is because commercial lenders have a central role in the economy, by serving to harness public savings and directing the low of crucial credit to the most productive industrial and infrastructure sectors. And when PSBs, with their revolving-door top managements, have little incentive or accountability to redress the burgeoning imbalance in their balance sheets, it is time the largest shareholder delivers an ultimatum: shape up or be prepared to face the consequences.

That the Centre has chosen to include the employees’ unions in the proposed MoUs it intends to enter into with the lenders is also indicative of the seriousness with which it is approaching the resolution this time around. Staff, who have been a key element in the growth and development of the sector, have a vested interest in the health of PSBs; the risk of continued failure is closure and job losses. To be sure, the Centre has to work simultaneously in close concert with the banking regulator and the lenders themselves to structure appropriate mechanisms to enable the implementation of the turnaround plans, including resolution of the stressed assets. Also, as Mr. Acharya pointed out, the PSB managements would need to be empowered so that “haircuts [writedowns on the value of debt] taken by banks under a feasible plan would be required by government ruling as being acceptable by the vigilance authorities.” The stipulation of a three-year time limit for the implementation of the turnaround is also significant as Indian lenders have to meet Basel III capital regulations by March 31, 2019. There is therefore little time to lose, and the government and the banks have their work cut out if India is to avoid the spectre of weak banks having little incentive to lend, and economic activity affected for want of credit.

Defusing air rage

“Air rage” — or sudden and violent behaviour by a passenger affecting those who work on flights or associated people — is a menace that has led to civil aviation authorities issuing strict guidelines on deterrence and punishment for those responsible for such acts. In India, while the laws on unruly and disruptive behaviour in an airliner are clear, they are difficult to enforce when the perpetrators take the cover of their positions of power. The outrageous conduct of Ravindra Gaikwad, the Member of Parliament from Osmanabad who belongs to the Shiv Sena, with Air India staff after seeking a business class seat in an all-economy light from Pune to Delhi, required more than just a legal response by the airline. The Air India cabin crew had its task cut out but handled the incident well as can be gleaned from raw video images of what transpired on March 23. The consequent steps taken by the national carrier and members of the Federation of Indian Airlines to put him on a “no-fly list” is a welcome one. While the Aircraft Rules of 1937 have outlined a course of actions to be taken after such disruptive behaviour, the application of a “no-fly list” is a new development and is in line with similar practices adopted in many countries. This practice should deter such outrageous actions by anyone, irrespective of whether the malefactor is in a position of power or not.

Such behaviour is, unfortunately, not uncommon among legislators. In 2015, a Jet Airways woman cabin crew member complained about alleged misbehaviour by Bihar MLA Pappu Yadav during a Patna-Delhi flight. In November 2015, a case was registered against YSR Congress Party MP P. Mithun Reddy and others for allegedly assaulting an Air India station manager at Tirupati airport. These incidents are symptomatic of a culture of entitlement that pervades many in power today and, sadly, gives credence to the flawed notion that political representatives are a law unto themselves. Mr. Gaikwad’s actions were compounded by the fact that he brazenly justified his behaviour — of hitting an airline employee with his slippers after the latter said that he would complain to the Prime Minister. While the Shiv Sena has said it does not condone his actions, its leader and MP, Sanjay Raut, has in bizarre fashion put the onus on Air India, asking it to think over “what would happen if the public decides to blacklist the airline”. The Shiv Sena has a history of high-handedness and use of political muscle. Party president Uddhav Thackeray had sought to move away from the rough arm tactics of the past and to align his party to a new form of provincial politics. Mr. Gaikwad’s behaviour suggests that the party is no closer to that goal.

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