The rally followed the govt's plan to bolster state-owned lenders.
Many bankers say the move will have a serious impact on the chain of command of nationalised banks and that it would only enable the government to dish out favours to a few of their own men.
India has a long way to go before it develops a culture of professional boards accountable to institutional investors. There is, therefore, no realistic alternative to reforming and strengthening PSBs under government ownership, says T T Ram Mohan.
In the policy banks, the government can have 100 per cent stake, McKinsey said.
An executive director of a bank could, for example, be elevated to the post of chairman of a different bank.
The finance ministry is not only keen to split the roles of CMD, but also wants to appoint them for a fixed tenure of five years.
The move to make the appointment process more robust comes after last month's arrest of S K Jain, chairman and managing director of Syndicate Bank last month, over graft charges.
Bankers said the mammoth task of cleaning up the PSBs and improving their health will be a mammoth task for any chief executive.
Advice to the new finance minister from former RBI governor Raghuram Rajan: 1. Clean up banks by reviving projects that can be revived after restructuring debt. 2. Improve governance and management at public sector banks. 3. De-risk banking by encouraging risk transfers to non-banks and the market. 4. Reduce the number and weight of government mandates for public sector banks, and for banks more generally.
RBI has cited at least 10 areas where it has no control over PSBs.
Jaitley has made it a habit of giving soundbytes to the media like his predecessors on why RBI should cut interest rates
Once these banks start showing losses, they will not be able to pay dividends to the government nor pay taxes, which will further aggravate the situation for the government as its return on investment as an investor would be very negligible for the next few years, says M V Subramanian.
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