Amendment of the banking law has been enlisted in this session of parliament. This is a reversal of the nationalization effected in 1969 and 1980, taking over private banks from business houses that were lending to only their kith and kin. As you can see from the total agriculture credit outstanding, that was just 2%.
Dr. Soumya Kanti Ghosh, Chief Economist, State Bank of India wrote in the Economic Times on the 21st of January 2015,”Chastising public sector banks for every failure is a comedy of errors- public banks have paid back many times the investment to the Govt.” So it is not true that Govt is spending its money on the capitalization of banks. In the last few years, the capital was provided to the banks only for writing-off corporate loans. If the recovery mechanism is strengthened, there is no need for capital inclusion, as last year all public banks have shown a net profit.
Some of the objectives of nationalisation were wider territorial and regional spread of branch network, better mobilization of savings, reorientation of credit, deployment in favour of small and disadvantaged classes, removal of control by a few business houses, and professionalizing bank services.
These have become more relevant today.
Customers per Branch
- Even today, the number of bank branches per person in our country is very low. It is one branch per 11,000 people, including private banks branches, whereas in many developing countries this ratio is one branch per 5000 people. There is an urgent need to double them, especially in the rural areas. Only public banks can do it.
Diminishing Small Credits
- As of March 2021, only 19.4% of the accounts with just 0.38% of the total loan outstanding were less than Rs.25000 and 75.5% of the accounts were less than the Rs.2 lakh limit with just 7.93% of the outstanding. Whereas 13109 accounts which are 0.0004% of the number of accounts have an outstanding loan of Rs.3227100 crores amounting to 30.05% of the total outstanding.
- As of March 1991, 94.9% of the accounts and 22% of the loan outstanding were less than Rs 25000. 98.3% of the accounts with 30.2% of the outstanding were less than Rs.1 lakh.
- Diminishing small credit leads to the flourishing of moneylenders and NBFCs. Privatization will further harm the masses.
Effect on inequality
- Inequality, which came down after the nationalization of banks, is increasing. In the year 1983, the top 10% owned only 30% of the wealth, and the bottom 50% owned 24%. One of the main reasons for the reduction in inequality after 1969 was access to credit, priority sector lending, and targeted credit through various schemes. As per the 2018 India Social Development report, by 2017 top 10% owned 80.7% of wealth and the bottom 50% owned 2.8%. We need a massive credit program for the bottom 50%, which can be done only by the public sector banks.
Huge credit demands
- Assuming every adult requires a loan, 75% of the adults do not have access to bank loans. There are only 27.1 crore loan accounts. Privatization will further push them to moneylenders.
- There is a huge demand for agriculture credit. The change in the norms has led to corporates availing themselves of agriculture credit. Public sector banks alone can make sure that credit reaches numerous small and marginal farmers.
- There are 43.85 Crore Jan Dhan accounts, of which 97% are with public banks (including RRBs). Now the government wants more Jan Dhan accounts. Without public banks, this is impossible.
No Watch Dog in the Board
- There are no officers and employee directors in the banks. So there is no watchdog. Appointing them immediately will improve fulfilling objectives of nationalization.
- All public banks are making a profit, their gross profit is Rs 50863 cr and net profit 17132 cr as of 31st March 2021. Then why are we pushing them towards privatization?
History of Bank Insolvency
- Between 1947 and 1951, 205 private banks went out of business. Between 1951 and 1967, 476 private banks went out of business. Between 1969 and 2008, 36 banks were taken over by other banks, most of them by public sector banks. In the US, 512 private banks have failed between 2008 and 2020.
- Global Trust Bank, Centurion Bank, and the Yes Bank had to be saved by public sector banks only.
- Skeletons have come out of ICICI and Axis Bank.
- All government schemes including Covid relief loans Mudra Loans, PM Svanidhi, Insurance schemes meant for weaker sections are done by public sector banks. Why are we privatizing them?
- Public sector banks strictly implement reservation policies in employment. Privatization will take this away.
- Privatisation means no education loans, no SHG loans, no small housing loans, no MSME loans and no farm loans.
Who wants Privatisation?
It is the business houses that want control of the banks. RBI has increased the shareholding rights of private investors from 15% to 26%. The immediate beneficiary is Uday Kotak of Kotak Mahindra. Now they are processing the recommendations of a committee to provide licences to corporate houses. The beneficiaries will be Ambanis, Adanis, Tatas, and a few others. They are the ones who want the privatisation of banks.
Why are there complaints of poor customer service in Public Banks?
The Govt policies have shifted focus from small credits to large credits. The employee strength has been drastically reduced. The number of branches is decreasing after the merger of the banks. While SBI has 1680 customers per employee, HDFC has only 467, ICICI has only 350 customers per employee. The lowest per-employee customer ratio in public sector banks is 1348 in the Canara Bank and the highest is 2500 customers per employee in the Bank of Maharashtra. The lowest number of customers per employee among private banks is 325 in the Axis Bank, and the highest is 923 in Federal Bank. So, we can see that public sector banks need a huge recruitment drive. There are around 11 lakhs business correspondents running Customer Service Points. They should be regularized and CSPs should be converted into branches. Basically, the solution is to change the policies in favour of a larger majority, increasing the number of branches and increasing the number of staff. What is being attempted in the name of privatisation is handing over more than Rs.100 lakh crore deposits to the corporates, which is a huge risk for the depositors and will direct small borrowers to the moneylenders. This comedy should stop.
Finally, there should be a discussion in the Finance Standing Committee, there should be discussions with stakeholders and several public hearings before any discussion can take place in the parliament.
This bill should not be introduced.
Thomas Franco is the former General Secretary of All India Bank Officers’ Confederation.
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