Whither bank nationalisation?

When the late prime minister Indira Gandhi took the step of nationalisation of 14 banks in July 1969, it was considered a radical socialist step aimed at socialisation of the economy. Almost 50 years down the line, the wheel has turned a full circle and we are now talking about privatisation of public sector banks! So, how have things changed over the years that the present government, as well as some of the previous governments, have sought to disown (disinvest) the public sector banks (PSBs).

The purpose of nationalisation of banks was to take banking services to the lowest strata of the society and to uplift the poor and the financially weak by providing them with the much-needed credit facilities that were otherwise being provided by the usurious and bloodsucking ‘savkars’ (private moneylenders). Accordingly, the PSBs spread their wings by opening branches in the remotest corners of the country. This would not have been possible if these banks had remained in the private sector.  But even after almost 50 years of ‘rural-focused’ banking by the PSBs, a large section of the rural population remained outside the purview of the financial mainstream. Clearly, the launch of Jan Dhan Yojana by the present government was an acknowledgement of the failure of the PSBs in taking banking to the masses. In other words, banking services in rural areas had remained limited to the privileged sections of the society.

Then, there was the issue of the unprofessional conduct and even downright corruption of the PSB managements that led to very high levels of non-performing assets (NPAs) of the PSBs. The huge losses of PSBs proved to be a drag on the government’s exchequer as the government had to recapitalise some of the PSBs from time to time to prevent them from going bust. The diabolical nature of the politician-businessmen-banker nexus proved to be disastrous for the PSBs as corrupt politicians joined hands with unscrupulous bankers to get loans worth billions of rupees sanctioned to dubious companies of crooks masquerading as businessmen. The result is there for all to see. Public money has been looted and plundered in broad daylight by fraudsters who roam freely in other countries.

The much-desired autonomy of the PSBs is also not forthcoming from the government, which leaves scope for interference by the politicians and bureaucrats in the affairs of the PSBs. The low remunerations of top management of PSBs (as compared to private banks) also fail to attract the best talent to the PSBs, which adversely impacts the overall performance of the PSBs.

In short, nationalisation of banks hardly achieved the purpose it was meant to achieve. So, why not go for all-out privatisation of all PSBs?