Systematic failures create pessimism

Failure of internal control systems in Punjab National Bank (PNB) has resulted in a major banking crisis.

The crisis is not just focused on a single bank – PNB. It has affected almost all PSU (Public Sector) Banks. Markets are asking the question: how many PSU banks may have similar system failures?

Unfortunately, the answer is not easy to come by. It is possible that PSU bank managements may themselves not know of possible problems inside their banks.

A second question comes up: What is the solution to the apparent crisis of confidence and management in PSU banks? It appears that many / most PSU banks are facing a difficult road ahead. They face an existing problem of bad loans given earlier. Now, these banks may be facing a different crisis: can they ever be managed profitable / professionally ?

Wise heads in Goverment, Reserve Bank and else where will seek answers to these questions. Possibly, something answers will emerge.

But, for retail investors, PSU banks should be a complete avoid. This is not a sector we wish to invest in.