The Hindu Editorial Analysis | 24th Sep’19 | PDF Download

Credibility deficit

• The Justice Kureshi episode raises fresh questions about the Collegium’s role
• In modifying its recommendation concerning Justice A.A. Kureshi, the Supreme Court Collegium appears to have succumbed to pressure from the Union government. Modifying its resolution of May 10 that the senior judge be appointed Chief Justice of the Madhya Pradesh High Court, the Collegium has now decided to send him to the Tripura High Court. It was quite apparent that the Centre was averse to the elevation of Justice Kureshi, who is from the Gujarat High Court, but serving in the Bombay High Court on transfer. The government did not act on the recommendation for months, raising the suspicion that it was blocking his appointment. The Collegium modified its decision after considering letters from the Department of Justice on August 23 and 27, and “accompanying material”. It is not known if the controversy has ended. It is possible that the Collegium and the Centre have arrived at a compromise under which the government drops its opposition to his appointment as Chief Justice on the condition that he is sent to a smaller high court. However, until his appointment as head of the Tripura High Court is notified, there will be a lurking doubt on whether the latest resolution is in line with the Centre’s approval. Under the current procedure, the Collegium may reconsider a recommendation, but the government is bound to implement a decision that is reiterated.
• It is quite acceptable if the Collegium and the government resolve their differences through consultation and correspondence, but the final decision should not be opaque, mysterious and indicative of executive pressure. It is common to charge the Collegium with lack of transparency, but in this case, the government is equally guilty. If the Law Ministry had a bona-fide objection to Justice Kureshi, it could have disclosed its opinion on his suitability.
• The failure to do so has the inevitable consequence of the public imagination concluding that the ruling party is blocking his elevation because of judicial orders he had passed while serving in Gujarat. As for the Collegium, it is unclear why it could not have disclosed what the government had wanted in its communications.
• This episode makes a dent in the prevailing narrative that the Collegium system is a shield against executive interference in judicial appointments. The time may have come for the two sides to come up with fresh clauses in the existing procedure of appointments under which the Collegium’s decisions are implemented within a time-frame, and the government’s objections and reservations, if any, are made public. Only then can the credibility deficit be bridged. But, even so, what is indisputable is that the Collegium system is deeply flawed, and is in need of urgent remedy.
• The initial enthusiasm of market analysts to the bank merger announcement is giving way to wariness and skepticism. There is a feeling that the potential benefits would take several years to show up and, meanwhile, the turbulence in the banks could take a toll on the real economy.
• The merger move demonstrates once again the lackadaisical approach of policy planners in implementing sensible banking reforms in Public Sector Banks (PSBs), first mooted by the Narasimham Committee more than a quarter century ago. While the committee had cautioned against merging weak banks, the government has ended doing precisely that.
• The consolidation should have been a gradual and calibrated exercise resulting in a smaller number of well-capitalized and professionally managed PSBs with a sound governance structure. Instead, what has come is a shotgun ‘reform’ decision at a time when PSBs are in deep malaise.
• A key concern about merging the ten PSBs into four in one stroke is a lack of clear articulation of the rationale behind bringing disparate and weak banks together, some of whom were still under the Reserve Bank of India’s Prompt Corrective Action (PCA).
• Further, such merger announcements generally trigger confusion, anxiety and insecurity in staff, leading to a slowdown in business. When decades-old brands are suddenly obliterated, there is widespread dismay. Poor communication within PSBs exacerbates the challenges.
• The smooth manner in which SBI merged five of its associate banks (ABs) in 2017 is not a relevant example in this regard. SBI had managed the ABs over the years with its own senior team, and all associates had already been functioning on common technology platform. In fact, left to its own, SBI would have preferred a gradual acquisition. The merger was forced upon it in the worst year of its history.
• Reversing decline in returns
• The efficiency gains from the mergers for large PSBs would be largely illusory in the absence of a sound management with a vision for the future. The post-merger scale economies that large international banks seek to achieve with ruthless measures are not feasible in India. Our objective should be to create bigger PSBs that can mirror the efficiency parameters of leading private sector banks here.
• The chief goal should be to reverse the decline in the PSBs’ Return on Equity (RoE) after investing considerable sums in bringing them on a common technology platform, and introducing better risk management measures. The merged entities should become agile and capable of meeting the challenges in retail and mass market segments from private players and open banking sources.

 To smoothen the merger process, Six measures may be worth considering.

1. First, it needs to be ensured that there is no leadership vacuum in the anchor banks. Mergers require strong skills in thought leadership, results leadership and people leadership. The technical skills needed for integration planning, transforming business support functions and value build-up have to be cultivated. There is a strong need to revamp Human Resources (HR) practices and culturally integrate the expanded workforce through sustained training initiatives.

• It is vital to give the current heads of anchor banks a three-year term, or a tenure that lasts till the incumbents reach the age of 62 years, to avoid uncertainties in managing the transformation, and to enable the chiefs develop a second line. It is equally important that the top leadership comes from within the banks based on performance. The practice over the years of shuffling senior executives from one PSB to another has done more harm than good.

2. Second, there is a need to recruit professionals from the market in key areas of technology, HR and risk management, in all of which PSBs are grossly under-equipped. Such recruitments should obviously be at market pay, which is the norm in joint ventures promoted by PSBs such as SBI.

Training the front-line staff

3. Third, PSBs should not be found wanting when it comes to recruitment and training of front-line staff. There is a fear that the ‘merger wave’ may sink fresh hiring. While there will be rationalization of headcount due to voluntary exits spurred by relocation and other compulsions, many staff members moved across their former banks may be less than suitable for the new roles. A buoyant exercise of recruitment and training is vital.
4. Fourth, the government should actively plan steps to offset a possible slow expansion in bank credit in the near term. There is a decelerating trend in loan approvals by PSBs, as brought out in the last RBI report on Trend and Progress of Banking. More risk aversion on the part of bankers, coupled with their internal preoccupations, could further slacken credit growth. Loan melas and directed lending measures would not be the ideal solution.

• Instead Non-Banking Financial Institutions (NBFCs), which have a better understanding of the market needs, need to be tapped to ensure better credit flow. In terms of size, NBFCs are about 15% of the combined balance sheet of all banks. They should be enabled to step in more actively to fill the gap in funding Small and Medium-sized Enterprises, which are facing real issues as regards credit availability.
• Here, it may be good to consider expanding the scope of the partial credit guarantee scheme announced in this year’s budget to cover all NBFCs treated as Asset Finance Companies, instead of restricting it to the top-tier NBFCs, which any way have access to multiple sources. The proposed sixmonth guarantee could also be raised to two years to build a sustained momentum.
• Further, the Credit Guarantee Fund Trust for Micro and Small Enterprises managed by SIDBI may be revamped to assist more NBFCs. Drawings by NBFCs constitute just 7% of the disbursements made so far, and smaller firms are not even aware of this option.

Ownership tangles

5. Fifth, the government should resolve the tangles in the ownership of the merging PSBs in insurance, asset management and other ventures. Some ventures involve foreign partners, and some are market-listed. The anchor banks should be free to take the best course that would optimize the value of such investments.
6. Lastly, the government should consider converting a few ‘weak’ PSBs outside the merger into regional banks. This was one of the recommendations of the Narasimham Committee. Banks such as Bank of Maharashtra and Punjab and Sind Bank that have spread manpower, network, and resources thin could be turned into vibrant regional institutions to serve agriculture, trade and commerce.

• While such consolidation can result in handsome productivity gains, what matters is the quality of execution by a stable and committed leadership, aided by a shrewd and benign ownership.
• CRZ-1: these are ecologically sensitive areas these are essential in maintaining the ecosystem of the coast. They lie between low and high tide line. Exploration of natural gas and extraction of salt are permitted
• CRZ-2: these areas are urban areas located in the coastal areas. Now under new coastal zone regulations 2018, the floor space index norms has been de-freezed.
• CRZ-3: rural and urban localities which fall outside the 1 and 2. Only certain activities related to agriculture even some public facilities are allowed in this zone
• CRZ-4: this lies in the aquatic area up to territorial limits. Fishing and allied activities are permitted in this zone. Solid waste should be let off in this zone. This zone has been changed from 1991 notification, which covered coastal stretches in islands of Andaman & Nicobar and Lakshdweep
• Recently, in Faheema Shirin v. State of Kerala, the Kerala High Court declared the right to Internet access as a fundamental right forming a part of the right to privacy and the right to education under Article 21 of the Constitution. While this is a welcome move, it is important to recognise the right to Internet access as an independent right.
• In recent times, several government and private sector services have become digital. Some of them are only available online. This leads to a new kind of inequality, digital inequality, where social and economic backwardness is exacerbated due to information poverty, lack of infrastructure, and lack of digital literacy.
• According to the Deloitte report, ‘Digital India: Unlocking the Trillion Dollar Opportunity’, in mid-2016, digital literacy in India was less than 10%.
• We are moving to a global economy where knowledge of digital processes will transform the way in which people work, collaborate, consume information, and entertain themselves. This has been acknowledged in the Sustainable Development Goals as well as by the Indian government and has led to the Digital India mission. Offering services online has cost and efficiency benefits for the government and also allows citizens to bypass lower-level government bureaucracy. However, in the absence of Internet access and digital literacy enabling that access, there will be further exclusion of large parts of the population, exacerbating the already existing digital divide.
• Moving governance and service delivery online without the requisite progress in Internet access and digital literacy also does not make economic sense. For instance, Common Service Centres, which operate in rural and remote locations, are physical facilities which help in delivering digital government services and informing communities about government initiatives. While the state may be saving resources by moving services online, it also has to spend resources since a large chunk of citizens cannot access these services.
• The government has acknowledged this and has initiated certain measures in this regard. The Bharat Net programme, aiming to have an optical fibre network in all gram panchayats, is to act as the infrastructural backbone for having Internet access all across the country.
• However, the project has consistently missed all its deadlines while the costs involved have doubled.
• Similarly, the National Digital Literacy Mission has barely touched 1.67% of the population and has been struggling for funds. This is particularly worrying because Internet access and digital literacy are dependent on each other, and creation of digital infrastructure must go hand in hand with the creation of digital skills.
• The importance of digital literacy
• Internet access and digital literacy have implications beyond access to government services. Digital literacy allows people to access information and services, collaborate, and navigate socio-cultural networks. In fact, the definition of literacy today must include the ability to access and act upon resources and information found online.
• While the Kerala High Court judgment acknowledges the role of the right to access Internet in accessing other fundamental rights, it is imperative that the right to Internet access and digital literacy be recognized as a right in itself.
• In this framework the state would have (i) a positive obligation to create infrastructure for a minimum standard and quality of Internet access as well as capacity-building measures which would allow all citizens to be digitally literate and (ii) a negative obligation prohibiting it from engaging in conduct that impedes, obstructs or violates such a right. Recognising the right to internet access and digital literacy will also make it easier to demand accountability from the state, as well as encourage the legislature and the executive to take a more proactive role in furthering this right. The courts have always interpreted Article 21 as a broad spectrum of rights considered incidental and/or integral to the right to life.
• A right to Internet access would also further provisions given under Articles 38(2) and 39 of the Constitution. It has now become settled judicial practice to read fundamental rights along with directive principles with a view to defining the scope and ambit of the former. We are living in an ‘information society’. Unequal access to the Internet creates and reproduces socio-economic exclusions. It is important to recognise the right to Internet access and digital literacy to alleviate this situation, and allow citizens increased access to information, services, and the creation of better livelihood opportunities.

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