This year we are celebrating the fifty years of bank nationalisation decision taken by the then Prime Minister of India, Mrs Indira Gandhi which then and now creates a lot of debate amongst economists, bankers and policymakers. Lord Meghnad Desai while opinionating on this in the month of January commented that it was one of the worst steps taken by the government and the state should rid itself of this white elephant as soon as possible as it is bleeding the taxpayers' money. He is not alone to raise this point as the pro-capitalist section have always been baying for their blood and the policy measures that were introduced as a part of it. They have argued that it created a very inefficient system which was used for welfare when a bank needs to be a purely commercial entity with profit making as the main goal. The priority sector lending has created a stress on the balance sheet of these banks without creating proper accountability, also not helping the cause for which it was introduced. In recent years, Non-Performing Assets (NPAs) have become the bone of contention as BASEL norms have tightened their noose on the Central Banks of the countries and RBI following the lead has asked all the banks to reduce their NPAs to manageable limits. Bank mergers are also a part of "commercialising" the nationalised banks as Raghuram Rajan have often reflected on the size of Indian banks, wanting a tier system with few very big banks at the top, followed by some medium-sized banks and then a large number of small/payment banks. Reserve Bank of India has been working on these lines and the analysis of the recent licences given to new banks shows the intentions of the Central Bank very clearly.
The present government is perceived to be led by a party which has "rightist" economic orientation or in other words, favours the laissez-faire system. However, in 2014 when it first came to power the Prime Minister in his first Independence Day speech declared the ambitious Jan Dhan Yojna promising that the entire country or every family will have a bank account by 2018 would have a bank account. Analysis of data shows that these accounts were opened by Public Sector Banks (the bête noir of capitalists) and were used by the "capitalist opposers" during Demonetisation to park their "clean money" meant for development. The state wants these banks to continue their aggressive drive to counter NPAs by not giving loans to the new entrepreneurs, students, women with low income or anybody who is not complying with the image of "developed" Bharat. It asked the SBI to give a loan of up to $1 billion for an Australian Coal mine project which was 0.9 per cent exposure of the total 5 per cent exposure of SBI for the coal industry. It is a different matter that the deal had to be called off because of pressure from the Australian environmentalists and widespread criticism of SBI's deal within the country. These two decisions highlight the dichotomy that is there in the economy with the state using these instruments for their political benefit, on one hand, encouraging crony capitalism and on the other hand encouraging privatisation of the Public Sector Banks.
My take is that in a country like India where 62 per cent of the population is living below the poverty line, where about 89 per cent of the industries are in the informal sector, where agriculture is still the main occupation, we cannot expect banks to be purely commercial entities. They have to play a bigger role and my personal study shows that Public Sector Banks have done much better than the Private Sector Banks, both at the national and international level. Employment provided by the nationalised banks cannot be overlooked or ignored, nor can be the credit facility provided to the priority sector. Prior to 1969, India had the private sector looking after the banks and historical data shows that between 1947 and 1955, about forty banks collapsed each year. Credit was monopolised by industries, agriculture was left to fetch for itself which was corrected after nationalisation. The RBI policy to allow one urban branch only when four rural branches would be open was the initiation of financial inclusion. As far as NPAs are concerned, it is true that Public Sector Banks have a higher percentage of them, to be precise 90 per cent of INR 8.41 crores is with them, but the origin of these NPAs have to be evaluated. Most of them have been due to the bank's exposure to huge industries who because of their capitalisation and goodwill have taken advantage of these banks. The recent case of Yasvardhan Birla is a point of proof. We as a nation require the banks to remain strong pillars to support the superstructure as the non-state actors cannot be allowed to take decisions of "rashtr hit"
