Nationalization of banks needs to end: Verdict from experts on the 50th anniversary of the policy

Reading the sequence of events of 1969, one does get the impression that nationalisation was a ploy used by Mrs Gandhi to wrest an ideological advantage in her battle with fellow Congressmen. The goal of serving farmers was secondary. Wrestling control over the Congress and establishing herself as the unchallenged Robinhood leader of the party and the country was the prime purpose.

Actually, it is pointless to battle the original reasons. the fact of the matter is, nationalized banks are certainly causing the country more pain than gain today and that is reason enough to privatise them. Two sets of numbers should suffice: As of FY19, default loans (or non-performing assets) of PSU banks stand at 13%, against 4.2% for private banks. As of FY18, private banks reported profits of over Rs 40,000 cr while PSU banks reported losses of Rs 85,400 crores.(RBI’s Report on Trend & Progress of banking in India).

While a lot of noise is made about the losses caused by PSU banks, a word on the injustice that the polity has heaped upon the PSU bankers. Till the eighties the SBI entrance exam was as competitive as the IAS and RBI entrance exams, The cream of the students were the ones who cleared the probationary officers' exam for nationalised banks. The country has done grave injustice to this crop by heaping on them politically motivated loans and programs and forcing them to compete with private banks who are not similarly disadvantaged, Further, PSU bankers until last year came under the Prevention of Corruption Act. They continue to come under the CAG and the CVC. They can not recruit competitively from leading colleges. And yet they have to compete with private banks. Maybe the nation has been more unfair to PSU bankers, than the other way round.

As for their boards, a paragraph from Dr YV Reddys book “ADVICE AND DISSENT” will suffice. The learned governor writes that when he was banking secretary in 1991, his finance minister Manmohan Singh asked him to get a list of high-quality finance experts to be appointed to PSU bank boards. Reddy got him the list. But none were appointed from that list. When Reddy asked the FM what happened, an unhappy Manmohan Singh said, whomever he had suggested, the party discarded saying they are not friends of the party.

This paragraph indicates why nationalized banks may never be privatised. As Dr Reddy points out, what politicians of both ends of the spectrum- UPA and NDA have realised is that PSU banks give them two huge advantages: One  it gives them a huge pot of  money  over which Parliament  has no control and two, it gives the central government an administrative machinery in the states to do their bidding.  State governments even of the same party as the centre, are usually unwilling to spend states’money and state government officers to implement the various Pradhan Mantri Yojanas. The central government can always fall back on the PSU bankers.

Thus, despite the overwhelming weight of performance and of intellectual opinion being in favour of privatisation, the chances look bleak.