Privatisation of Public sector banks is no Solution

Privatisation of Public sector banks is no Solution: The Central government has initiated to work on the privatisation of public sector banks in line with the disinvestment plans of Rs 2.1 Lakh Crore In financial year 2020-21
Privatisation of Public sector banks is no Solution

The Central government has initiated to work on the privatisation of public sector banks in line with the disinvestment plans of Rs 2.1 Lakh Crore In financial year 2020-21 announced by Finance Minister Nirmala Sitharaman in Budget on 1st February, 2020.

NITI Aayog suggested to include allowance of long-term private owned capital in the banking sector. NITI Aayog also advocated the provision of banking licenses to select industrial houses under stringent guidelines.
In order to execute the aforementioned divestment plans in public sector banks the Bank Nationalisation Act has to be amended.
Before we jump into the article let us know that PSBs are governed and regulated by the RBI under the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970.

Know about Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970

The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 states that the Central Government can consult with the Reserve Bank of India (RBI) to sketch a scheme for the amalgamation of any nationalised bank with any other nationalised bank or any other private banking institution.

The immediate impacts of privatisation of public sector banks

  • More than 66% of the country’s population will once again be out of banking service because these accounts will no longer be profitable.
  • The concept of privatisation is totally against the idea of financial inclusion. Nachiket Mor committee was set up by the RBI in 2013, where the reports focused on a clear and detailed vision for financial inclusion. Low income households and small business was prioritised in financial deepening in India.

Why privatisation of public sector banks is no solution

  • Let us start with a vivid example of 2008, a raft of European and American banks, all privately owned, were bailed out by the corresponding governments. The institutions which were bailed out included some of the best-known brands like JPMorgan Chase & Co., Morgan Stanley, American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp. etc. No, it was not the last time we witnessed bail outs, later we came across Japanese banks in the late 1980s, Korean banks in the late 1990s predated the 2008 crisis, where taxpayer money was used to bail out private institution.
  • It should be noted that the country faced a huge scam in PNB. But still people are not withdrawing from PNB, they still have faith in the bank. That’s because it is a public sector bank. The situation would have been different in case of a private sector bank as we can see in case of Yes Bank.
  • Some economists support privatisation pointing at PNB scam. Let’s not overlook private corporate performance in recent times.
  • R P Info Systems Bank Scam of Rs. 515.15 crore in 2018
  • Rotomac bank fraud worth Rs. 3,695 crores in 2018
  • Axis Bank hawala scam of Rs 2,000-crore
  • Chanda Kochhar led ICICI bank scam
  • Rana Kapoor led Yes Bank scam of 3000 crores
  • Uday Kotak led Kotak Mahindra Bank fraud

 

  • Besides there are many examples of private banks like Dhanalaxmi Bank, Federal Bank, Indusind Bank against of which suits are already filed. This is the convenient corporate performance which is not discussed in mainstream media.
  • Public sector banks are structurally vulnerable to poor governance. The way to do this was outlined by the PJ Nayak. The committee recommended better governance by implementing distancing between the government and top public sector appointments. In fact, the Banks Board Bureau was constituted to perform and monitor this situation but it failed by huge margin.

Know about Banks Board Bureau

  • BBB is a self-governing autonomous body of Government of India.
  • It is an advisory authority consisting eminent professionals and officials with an aim to improve the management of Public sector banks.
  • Banks Board Bureau is headquartered is at the Central Office of Reserve Bank of India Mumbai.
  • BBB is functional since April 1, 2016.
  • Vinod Rai was appointed the first chairman of Banks Board Bureau in 2016.
  • Chairman of Banks Board Bureau is appointed for a two-year term.
  • Bhanu Pratap Sharma is the current chairman of Banks Board Bureau.
  • Banks Board Bureau is the strategical part of Indradhanush Mission under NDA Government.

Now some questions to be asked before the privatisation of public sector banks

  • Who will cater for rural India?
  • What would be the fate of farmers?
  • How the yojanas like Mudra yojana, Pradhan Mantri Atal pension yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Yojana etc be implemented?
  • What about JAM initiative?

Know about JAM initiative

  • JAM is an acronym for Jan Dhan-Aadhaar-Mobile trinity.
  • It is an initiative launched by Government of India to link Jan Dhan accounts, Mobile numbers and Aadhar cards of Indians to directly transfer subsidies and eliminate intermediaries and leakages with an aim to better governance and transparency.
  • The JAM initiative was first proposed in the Economic Survey 2014-15.

Reform is needed, not privatisation

  • Margin of operating independence for public sector banks should be increased.
  • Reforms like proper and timely monitoring of loans, pre-audit sanction from specialised agencies and various kinds of regular audits to check there is no diversification of funds is highly needed.
  • The Bankruptcy Code has to be made effective and transparent so that it cannot be scripted by unscrupulous promoters.
  • Weight of mandates for PSBs have to be reduced. In present -days there is a well-established weight mandate i.e. debt waiver for farmers. The farmers need a capital help from the government in the middle of Locust attack and COVID 19 pandemic but debt waiver devours the repayment culture.

Conclusion

Privatisation as an elemental step as the overall reform policy in other sector works fine, but implementation of privatisation of public sector banks is more a political step a far from a remedy what Indian economy needs right now. It is rather fraught with adverse consequences as it will decrease India’s manoeuvrability to address the people’s trust which is completely lost amidst COVID 19 Pandemic. Improved governance and transparency in public sector banks, is desperately urged, way more than privatisation.
Share The Article
  •  
  •  
  •  
  •  
  •  

4 thoughts on “Privatisation of Public sector banks is no Solution”

Leave a comment

Open chat
1
Need Help? Chat with us
Hello?
How can we help you?