Looking beyond privatisation
Context:
In the recent Budget session, the Union government announced its intent to privatise Public Sector Banks (PSBs).
Background:
- Improving efficiency has been cited as the reason for this move, it is not clear whether privatisation brings efficiency or reduces associated risks.
- Around the world, innumerable private banks have failed, thus challenging the notion that only private banks are efficient.
- Similarly, if private enterprises are the epitome of efficiency, why do private corporate entities have such large volumes of NPAs?
Bank nationalisation: ● Bank nationalisation ushered in a revolution for India’s banking sector. ● Before nationalisation, barring the State Bank of India, most banks were privately owned and they largely benefited the rich and the powerful. ● The nationalisation of 14 private banks in 1969, followed by six more in 1980, transformed the banking sector, created jobs, extended credit to the agriculture sector and benefited the poor. ● Areas that had so far been neglected, including agriculture, employment-generating productive activities, poverty alleviation plans, rural development, health, education, exports, infrastructure, women’s empowerment, small scale and medium industry, and small and micro industries, became priority sectors for these banks. |
Nationalisation brought Equitable growth:
- The move also helped in promoting more equitable regional growth, and this is evident from RBI data.
- There were only 1,833 bank branches in rural areas in the country in 1969, which increased to 33,004 by 1995 and continued to grow over the next decades.
- Banking services also reduced the dependence on moneylenders in rural regions.
- Nationalised banking improved the working conditions of employees in the banking sector, as the state ensured higher wages, security of services, and other fringe benefits.
Importance of PSBs:
- PSBs are vehicles of the Indian economy’s growth and development, and they have become the trustees of people’s savings and confidence.
- The PSBs played a huge role in making the country self-sufficient by supporting the green, blue, and dairy revolutions. They have also contributed significantly to infrastructural development.
- Public sector banks in India are currently earning considerable operating profits, to the tune of Rs. 1,74,390 crore in 2019-20 and Rs. 1,49,603 crore in 2018-19.
Issue with Privatisation of PSBs:
- Placing such a huge network of bank branches and the infrastructure and assets in the hands of private enterprises or corporates may turn out to be an irrational move.
- It could lead to denial of convenient and economical banking services to the common man; the risks of monopoly and cartelisation may only complicate the issue.
Issue of Stringent laws in Banking Sector:
- Stringent measures are required to recover large corporate stressed assets, which is a key concern for the entire banking sector. This must include strong recovery laws and taking criminal action against wilful defaulters.
- Wilful default by large corporate borrowers and subsequent recovery haircuts, imposed through the ill-conceived Insolvency and Bankruptcy Code, has resulted in a heap of write-offs, putting a big dent on the balance sheets of PSBs.
- This has not only affected the profitability of the banks, but has also become an excuse to allege inefficiency.
Conclusion:
There is an urgent and imperative need to bring in a suitable statutory framework to consider wilful defaults on bank loans a “criminal offence”. A system to examine top executives of PSBs across the country will also help in improving accountability. But privatisation of PSBs is not a definitive panacea for the problems of the banking sector in India.
https://www.thehindu.com/todays-paper/tp-opinion/looking-beyond-privatisation/article34095992.ece