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Mainstream, VOL LVI No 10 New Delhi February 24, 2018

The Cry for Bank Privatisaton

Friday 23 February 2018


One can of worms after another is opening in the banking industry. If a diamond merchant has defrauded public sector banks of over eleven thousand crore rupees, or a liquor baron of nine thousand crore rupees, there are smaller operators whose ‘modest’ achievements have been under four thousand crore rupees. As these skeletons tumble out of the NDA cupboard, there is a strident cry for privatising the banking industry. The Assocham has demanded privatisation, big business is demanding privatisation, eminent ‘opinion-makers’ are demanding privatisation, as if bringing the banks under private ownership is a panacea that will cure all ills afflicting the banking industry for all time to come.

Without going into the circumstances and causes of the looting of public money on such an astronomical scale, without unravelling the unholy nexus between big business, politicians in power and the upper strata of the bureaucracy, without explaining how the in-built checks and balances system in the banking industry collapsed, the people are being told that privatisation is the only remedy that can end the corruption in banks and put them back to the pink of health.

Indira Gandhi nationalised fourteen largest banks of the country on July 19, 1969. She said at that time: “There is a great feeling in the country regarding the nationalisation of private commercial banks. We can consider the nationalisation of a few top banks or issue directions that the resources of banks should be reserved to a larger extent for public purposes.” That was the rationale behind bank nationalisation: to use bank money—that is, public money—for public purposes. Indira wanted the nationalised banks to extend the banking network across rural India, where ‘business density’ was very low and therefore private banks were most unwilling to operate—either for mobilising deposits or for disbursing loan to farmers and rural industries to boost employment and economic activity.

Indira Gandhi had said at the time that even after the new policy of social control and reconstitution of the boards of directors, the former industrial chairmen of the banks still continued on the board and influenced the present chairmen who had previously been general managers. “We may examine,” she said, “whether through legislation or otherwise, we can prevent such men from continuing on the board. The chief executives of the banks will not then feel obliged to the former chairmen and they may be expected to take an independent line in regard to lending.” This gives an insight into her mind and makes clear her objectives and intentions.

Leave aside everything. Will privately owned banks be interested in Prime Minister Narendra Modi’s much vaunted ‘Jan Dhan Yojana’? The operation of so many accounts with so little deposit in them is unprofitable: this is a common complaint in banking circles. The idea behind nationalisation was to benefit mainly the rural people. Private banks are for making profits, not for helping the rural and urban poor. A farmer, who may have taken a bank loan of five lakh rupees to buy a tractor and already repaid three lakhs, will see his tractor being seized by the bank if he has defaulted in paying his instalment just once.

But the Modis and Choksis and others of their ilk can swindle thousands of crores of bank money, which is common people’s money, and get away with their loot with impunity. They can safely escape from the country, knowing full well that they will not be prevented from escaping. All the hullabaloo will start after they have safely left this land. Those in power will start bragging: “They cannot escape. We will bring them back and make them pay through their nose all the money they have looted”, knowing all the time that the birds have flown and cannot be brought back. First, the looting of the money, then the fooling of the people.

Those clamouring for privatisation of banks conveniently forget that even under private management, defrauding of banks had taken place. Let us recall some facts. Between 1948 and 1968, as many as 736 private banks had either failed or been amalgamated or ‘ceased to function’ or went into liquidation because of mismanagement and siphoning off of money. Between 1969 and 2008, as many as thirtysix private banks were put under moratorium in public interest or they just ceased to exist because of gross mismanagement. If private banks are really so efficient and so professionally managed, why were they closed down or had to be merged with public sector banks?

By the end of September 2017, the total ‘bad loans’ (that is, loans which the banks know cannot be recovered) of public sector banks stood at Rs 7.34 lakh crores, because the big sharks in the corporate sector had swindled the banks—they did not repay either the principal or the interest. Today, the situation is such that if these banks show this amount as ‘loss’ most of them will be in the red because their paid-up capital has already been eaten away. The government has allowed the top tycoons of the corporate sector to go scot-free with their loot. The people are being made to pay for the money looted by the corporate sharks by way of constantly diminishing interest rates on their term deposits, savings bank deposits, small savings schemes and Provident Fund accruals.

The champions of privatisation of the banking industry should first tell the people, if the public sector banks are privatised, what they will do with the wilful defaulters in the corporate sector. What will happen to the Mallyas and Modis and Choksis and Kotharis?

February 20 B.D.G.

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