After the recent Punjab National Bank fraud, demands are coming from the Associated Chamber of Commerce and Industry (Assocham) and the Federation of Indian Chambers of Commerce and industry (Ficci) that nationalised banks should be privatised and denationalised.
It is important to note at this point that initially all banks in our country were in the private sector. Even when India gained Independence, in 1947, all banks were private. In 1950, when we became a republic and the government worked out the process of planned development, it realised that funds were required to undertake and complete all long-term projects. The existing private banks were having people’s deposits, but did not come forward to extend loans for development purposes. They were more interested in their profits.
The government then set up the Rural Credit Survey Committee in 1951 and it was found that rural areas were starved of bank credit. So, in 1955, Imperial Bank was renamed State Bank of India, to open rural branches. But only few branches could be opened. It was felt that rural areas needed more banks so that more credit could be given to agriculture, employment, small scale industry, besides overall development.
Our party, the CPI, then demanded nationalisation of banks so as to bring all private banks under government control. The All India Bank Employees Association (AIBEA) had also demanded bank nationalisation. The government was not willing because private bank owners were not agreeable to the idea.
In 1967, the Congress lost power in many states. So they needed pro-people policies to regain popularity and thus Indira Gandhi proposed bank nationalisation and the abolition of privy purses.
The Congress was split but India Gandhi, with the support of CPI in Parliament, nationalised 14 major banks in July 1969. In 1980, another six banks were nationalised. In 1975, regional rural banks were started by the government to serve rural areas. Today, 80 per cent of banking is under the public sector and public sector banks have done a wonderful job.
The clamour for privatisation began again during 1991-92 economic reforms.
In 2000, the Atal Behari Vajpayee government brought a bill to privatise the state-owned banks. The CPI as well as all the progressive parties opposed it. So the bill could not be passed.
Because of deregulation and liberalisation, bank loans are not being repaid. Today NPA bad loans is a big issue. It is Rs 950,000 crores. Who are the defaulters? — Big corporates. But there has been no action against them. All kinds of concessions, waivers and write-offs etc are being given to them. It is the poor borrowers who are harassed.
The PNB fraud is shameful and alarming and people have the right to know what is happening in banks. But this is not the first time. We have the examples of Harshad Mehta, Ketan Parekh, Vijay Mallya before us — they all cheated banks and people. Why then has the government learnt no lessons? Finally, take any major fraud in our country, one will see the hand of private corporates in it. Let them not forget that the bulk of the loans given by the public sector banks are to private corporate houses. If public sector banks are not efficient, why do they avail these loans from PSBs and why not take such loans from private banks? The devil shouldn’t quote scriptures.
Assocham and Ficci should ask private sector corporate defaulters to repay the bank loans to the PSBs and condemn Nirav Modi for the fraud he has committed on PNB. There is no need for privatisation of banks. Instead, there is a need to strengthen the state-owned banks.
The writer is national secretary, CPI
Free banks from political interference
It is beyond doubt that Indian public sector banks are in a crisis situation and, ironically, as is the nature of the financial market the contagion can spread to the rest of the economy. After all, we cannot expect crisis-ridden banks to focus on lending. It cannot be business as usual when you are busy in a fire-fighting operation.
But then, as they say, there is an opportunity in every crisis. The crisis triggered by the multi-crore fraud in the Punjab National Bank should not be allowed to pass off into history, without really shaking us into shaping ourselves better. One might ask, what is the answer. Well, the structural problem has to be taken head-on, and PSU banks must not remain under the ownership of the government if they have to be freed from political interference, crony capitalism and all other ills.
In the Indian political economy, the word “privatisation” evokes a strong reaction. An argument is being advanced — why give banks to the private sector when some of the big-time industrialists did the damage to the public sector banks by borrowing through dubious means and then fleeing the country. The argument cannot be brushed aside. India Inc is as much a part of society as any other section. So, the right solution would be to diversify and spread the equity of a public sector bank well in the market, along with bringing the government stake well below 50 per cent, so that the boards can function independent of any external interference.
It is not that private sector banks cannot fail. But the cases of private sector banks slipping into crisis are far and few between, whereas among the PSU banks it has become a pattern. In fact, it could be very demoralising for the honest officials and staff of PSU banks wherein the dishonest, in collusion with the external people, walk away with the loot.
So, let the fraud in the Punjab National Bank act as a strong trigger for the government for reducing its stake to less than 50 per cent in the state-owned banks. The PSU banks are slipping from one crisis to another and there is a limit up to which the government can keep bailing them out at the cost of taxpayers, even if it is the principal shareholder in these. It is a double whammy. Not only is the taxpayers’ money used for re-capitalising the banks by pumping in over Rs 2 lakh crores, but the state ownership also loses market capitalisation of its equity in the banks. See the irony, the market capitalisation of 21 listed PSU banks put together is less than that of HDFC Bank. Who loses? All of us — as taxpayers.
The top positions in state-owned banks are treated as extensions of a government job and the seniormost in the management spend the bulk of their quality time receiving and implementing directions from the bureaucrats, many times over innocuous issues. In the process, the core banking functions, including the all-important risk mitigation and management, take a backseat. With the banking system adopting newer technologies, the problem has become grave as technology can prove to be a double-edged sword, if misused.
Once the government equity in the banks is reduced to below 50 per cent, there would be much more autonomy along with accountability and responsibility at the senior management level. The boards should then be truly taking policy decisions, while the CEOs would run the banks with full authority, coupled with the commensurate responsibility, instead of looking towards bureaucrats for directions.
Irrespective of the ownership, the regulatory environment also needs to improve and be made accountable. The Reserve Bank of India should take the lead and engage with industry in finding ways to do clean business in the entire financial sector, be it the public sector or private sector banks, or even the non-banking finance companies.
The writer is the Assocham secretary- general