Nationalisation of the banks which had deposits above Rs.50 Crores, covering almost 85% of the total deposits on 19th July 1969 was historic, dramatic and welcomed by majority of the people. Some described it a sin, Jan Sangh, the earlier Avatar of BJP opposed it. Some went to court but the banking scenario changed completely. We switched over from class banking to mass banking, urban banking to rural banking. The decision of that period was economic, social and political.
We had two draughts in the sixties and during 1965-66 the GDP growth was negative. The credits to agriculture was just 2% from 1951 to 1967, though cultivators constituted 76% of the rural population and 24% were farm labourers. Our import was almost double of exports. There was not much of industrial production. Economic inequality was high and wealth was concentrated with few. 70% of the loans went to 1% of the customers helping concentration of wealth. Dr. P.C. Mahalanobis committee pointed out that 10% of the population had cornered 40% of the income during 1960.
Dr. R.K. Hazari Committee in 1967 had stated, “so long as many of the major credit institutions are under direct control / and of influence of big industry and unless the linked control of the industry and banks in the same hands is snapped by nationalisation of banks, reducing concentration of economic power with a few was not possible”. On an average every year 35 private banks failed between 1951 and 1967. So there was economic and social compulsion to keep the promises of the independent struggle. There was pressure from trade unions and left as well as socialist politicians. In fact congress had passed a resolution as early as 1948 promising Nationalisation.
In the Lok Sabha election of 1967 Congress won 283 of the 520 seats as against 361 out of 494 it had won in 1962. Congress also lost power in 7 states. After the death of Lal Bahadur Shastri on 11th January 1966, Mrs. Indira Gandhi had become Prime Minister and she had to consolidate her position and also keep the promises to the people.
Hence Natinalisation was announced by Mrs. Indira Gandhi through an ordinance signed by Mr. V.V Giri as the President of India. The background and the way it happened have been detailed by Dr. I.G. Patel in his autobiography, “Glimpses of Indian Economic History,” in the book, “No Regrets” by Dr. D.N. Ghosh who was Dy. Secretary, Finance and later became Chairman SBI .
The declared objectives of Nationalisation were,
- Wider territorial and regional spread of branch network.
- Better mobilisation of financial savings through bank deposits.
- Reorientation of credit deployment in favour of small and disadvantaged classes all along the production spectrum.
- Removal of control by a few business houses
- The conferring of a professional bent to bank managements.
- The provision of adequate training and reasonable terms of service for bank staff.
A study of 18 years’ experience before Nationalisation and 18 years after reveals that all the objectives were fulfilled.
Before 1969, RBI was Nationalised on 1st January 1949 and Imperial Bank of India was Nationalised creating SBI on 1st July 1955 based on the recommendations of All India Rural Credit Survey released in 1954. In spite of that there was a huge gap as explained earlier.
Between 1951-1969, no of bank branches just doubled to 8262 in 18 years whereas it increased 5 fold to 53840 in 1987. The population per branch came down from 87000, to 65000 in 1969 whereas it came down to 16000 by 1987. The deposits had increased 4 fold in 1969 to Rs.4646 crores but in the next 18 years increased 200 fold. The advances had increased 5 fold in 1969 but increased 160 fold by 1987. Priority sector lending went up from 15% to 41%. Agriculture credit increased from 2% to 18%. Branches spread to the non banked areas. Every block head quarter in the country had to open a branch under the Lead Bank scheme which was fulfilled to a large extent, district level credit committees and block level credit committees assessed credit needs, fixed targets and monitored implementation. NABARD which was created on 12th July 1982 prepared potential linked credit plan for every district which was monitored by the district credit committee which had the District Collector / Dy. Commissioner, RBI & NABARD representatives, representatives of all banks and also elected representatives of assembly and parliament.
Integrated Rural Development Programme was implemented by the banks. 1% of the total credit went to poorest at 4% simple interest and there was huge increase in small credit. As of 1991 March, out of the total credit, 94.9% accounts were of small borrowers who borrowed less than Rs.25000. The amount was 22% of total credit outstanding. Green Revolution in agriculture, White Revolution in milk production and Blue Revolution in fisheries became successful because of bank credit.
The control of banks by the business houses was snapped. Mass banking came from class banking. Anybody including poor could walk into the banks.
Massive recruitments took place through the bank recruitment board and SBI recruitment board talented youth were appointed as probationary officers and rural development officers. Training centres, staff colleges and bankers institute for rural development came into existence providing professionalism as expected. Youth from rural areas could become bank employees.
From 1970, officer directors representing officers association and workmen directors representing workmen unions were in the boards of nationalised banks including SBI. They could give real feedback and play a watchdog role. Salary and service conditions improved through bipartite settlements instead of awards by tribunals.
Though the historic indefinite strike in SBI from 11th June to 27th June 1969, brought better service conditions to officers, the representation in the board paved way for improving service conditions.
Thus all the objectives of Nationalisation were achieved.
The biggest achievement was that the income inequality could be brought down. From 10% owning 40% of the income as quoted by Dr. Mahalanobis, in 1960, by 1982-83 the top 10% s income came down to 30%. The income of the bottom 50% which was 19% went upto 24% in 82-83.
All this changed from 1991 after the IMF & World Bank directed policies were brought in with the first Narasimham Committee report.
It argued against using credit for social objectives. It argued that directed credit should be removed. It argued that banks should be market driven and profitability driven. It wanted larger role for private and foreign banks. This was followed by Narasimham Committee-2, Raghuram Rajan Committee, Anwarul Hoda Committee, Khandelwal Committee and P.J. Nayak Committee which all followed the neo liberal market capital theory and recommended on similar lines.
The summary of the recommendations are:
- Government stake in public sector banks to be brought down to 33% and less.
- Merger / Acquisition of public sector banks for consolidation.
- Liberal entry to foreign banks
- Share of FDI in private banks to be increased.
- Bring Nationalised banks under Companies Act
- Provide proportionate voting rights to share holders without ceiling.
- Provide bank licenses to corporate houses.
- Phase out priority sector lending
- Outsource jobs in banks and use banking correspondents
- Promote asset reconstruction companies
- Amend Banking Regulation Act
- Reduce staff strength and go for digital banking
Most of these have been done directly or indirectly except privatization. The character of the public sector banks as service providers as envisioned in the Banking Companies (acquisition and Transfer) Act or Nationalisation Act have been changed through various measures. Today public sector banks are really not public, in terms of serving the majority.
Some of the measures are listed below:
- Credit Authorization scheme seeking permission from RBI for granting loans above Rs.1 Crore, was abolished.
- Monopolies and Restrictive Trade Practices Act was removed paving way for corporates to avail large loans.
- Priority Sector Lending norms were diluted. The limit for small, micro and medium enterprises were raised repeatedly paving way for bigger industries to come under priority sector. Allied agriculture activities were enlarged. Instead of giving loans to agriculture, banks were allowed to deposit in NABARD’s rural infrastructure development fund. They are now permitted to buy participation certificates from RRBs instead of giving priority sector loans. 1% loan under differential rate of interest of 4% (simple) is forgotten.
- District and block credit committees have become ritual.
- Asset reconstruction companies, national company law tribunals, debt recovery tribunals were created to help write off of loans instead of recovery. In the last 10 years banks have written of around Rs. 7 lakh Crores out of which 80% was in the last 5 years 2014-2019.
- Recruitment in banks was banned for 10 years. An attractive VRS scheme was given in 2000-2001 in which 103200 employees left the banks which was 11.7% of the total employees as on March 2000. This forced the banks to concentrate on larger credit instead of small credit due to shortage of staff.
- Many jobs in the computer centres, inspection, recovery, drivers, cleaning staff, watch and ward staff were outsourced depriving youth of permanent employment.
- Instead of opening branches business correspondents were recruited on contract service violating labour laws. Their number is 526000 as per NABARD. To avoid litigation, they are made to work under national business correspondents losing 30% of the commission. Reliance is also a national business correspondent.
- Retired staff are again recruited for a smaller salary, depriving youth of their job.
- Loan Melas have become the order of the day and NPA is mounting. It is more than Rs.10 lakh Crores which is dangerous.
- Merger of banks have reduced public banks to 12.
- Corporates like Reliance, Airtel, Paytm have been allowed to start payment banks. Jio Payment bank has the largest bank SBI as a junior partner.
- Small banks, payment banks and universal banking licences are given on tap basis.
- Deposits of government and PSUs are given to private banks also. They are allowed to operate currency chests as agents of RBI.
- Entry of foreign banks are encouraged.
- FRDI bill was introduced, withdrawn due to pressure from below but is going to come back as FSDR Bill.
- Bankers wage revision is delayed for 3 years and the offer if accepted will make bankers poorly paid than school teachers and state government employees. An officer in bank will earn less than a clerk in central government at entry level.
- There is no officer or workmen director in the banks for 6 years. Even court orders are violated by the central government on this issue.
- Government itself converted industrial investment credit and investment corporation into ICICI bank as a private bank. Similarly, HDFC, Axis bank and IDBI banks have been promoted by the government in private sector. Private banks now have 28.7% of the deposits and 33.6% of the advances but cater to the rich and their presence is mostly in urban and metro centres.
- Staff shortage is leading to poor service and banks are not able to meet the huge demand for loans, especially smaller loans.
Through GyanSangam, Vichar Manthan, IndraDhanush, banks board bureau the reforms are proceeding towards privatisation. Privatization is talked about openly, everyday, everywhere.
In spite of these reforms which are not really reforms but destruction, banks are used as milking cows.
- As on 1st July 2020, public sector banks have 31.51 Crore Jan Dhan A/cs, RRBs 6.94 Cr A/cs but private banks only 1.26 Cr Jan Dhan A/cs.
- As on 31.03.2020, banks have disbursed to 62237981 borrowers Rs.329684.63 crores under MUDRA schemes.
- Under KCC, banks including Co-op banks have reached 10.56 Crore beneficiaries.
- The FM has given a target of RS.15 Lakh Crores under agri credit which banks will fulfill.
- Within a short time banks have sanctioned 49%of the enhanced credit facility to MSMEs out of the Rs.3 lakh crore target.
- They are implementing so many government schemes like Stand Up India, PM’s Yojana, pension scheme and also disburse all subsidies without any remuneration.
Ignoring the Indian conditions, increasing inequality after 1991 which has lead to top 10% owning 77% of wealth, IMF, World Bank and US are pressuring Privatisation of public sector banks. US Treasury Secretary Lawrence Summers under president Bill Clinton and another Treasury Secretary Timothy Geithner under President Barack Obama had urged the government to privatise SBI first. The Government could not do it then. Now they seem to be determined to handover to Reliance and other corporates including Foreign Investors.
Public sector banks do require certain changes by reversing the measures undertaken in the last 20 years but Privatisation will be throwing the baby with water. If the government in power doesn’t understand they will have to go.
“This Country with its institutions belongs to the people who inhabit it. Whenever they shall grow weary of the existing Govt, they can exercise their constitutional rights of amending it, or exercise their revolutionary right to overthrow it” –Abraham Lincoln.
Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.