Around 10 Lakh bank employees of Public Sector Banks (PSBs) are protesting for two days against the proposal to privatise (sell) two Public Sector Banks. Here, I try to explain why Public Sector Banks are important for overall economic development and their significance in terms of their role in implementing different government schemes.
- Closing of Rural Branches: Public Sector Banks do not only operate to maximise short term profit but also play a vital role in providing crucial banking services in rural and backward areas. Public Sector Banks can cross subsidise (use profit from urban areas to compensate low profit/loss in rural areas) the rural banking operation. Private sector banks don’t operate in rural areas and backward areas as it is not profitable for them to do so. Private banks only operate for short term profit and mostly cater to the Rich and urban/metropolitan areas. This gap is filled by Public Sector Banks which benefit crores of rural customers. Once they are privatised, these branches will either be closed or transaction fees will be increased by the private banks making it beyond the reach of rural poor and farmers.
- Banking Benefit for Poor and Unemployed: Public Sector Banks implement various government schemes and programmes which are completely neglected by private banks as it not profitable to do so. PSBs implement and maintain crores of Jan Dhan Accounts, MNREGA accounts, Pension payments which mostly benefits the poor, unemployed and old citizens of the country. But Private sector banks will not operate these accounts as they are costly to maintain and generates very low revenue. So privatisation of Public Sector Banks will lead to crores of poor and unemployed loosing these banking facilities.
- Safety of Hard Earned Money: Public Sector Banks are far more safe and stable compared to private banks. Since salaries of management are fixed and their actions are accountable to public agencies (like CAG, Central Vigilance Commission, CBI), PSBs do not engage in risky and speculative activities which can compromise stability of banks. Since Public Sector Banks have backing from the government, they don’t go bankrupt. So your hard earned money is safe with PSBs. But private sector banks have incentive to engage in risky activities and have no accountability to public, so they tend to be more risky and frequently go bankrupt. One of the best examples is the gigantic failure of private banks in USA and Europe during the Global Financial Crisis (2007-08) which almost destroyed the world economy. History of Indian banking shows that most of the banks which went bankrupt wasting depositors’ money were primarily Private banks. Between 1947 and 1969, 559 private banks in India failed, with numerous people losing their life’s saving. Only after Nationalisation of Banks, bank failures reduced significantly. Recent (after 1990s) List of private bank failures include Lakshmi Vilas Bank, YES Bank, PMC bank, Ganesh Bank, Bareilly Bank, Times Bank ltd, Bank of Karad, Global Trust Bank, British Bank of Middle East, Sikkim Bank ltd, Purbanchal Bank, Bari Doab Bank, Punjab Cooperative Bank, Parur Central Bank, Kashinath Seth Bank, Bank of Thanjavur, etc. Most of these private banks were rescued by the public sector and merged with them. Even recently, YES Bank was rescued using money from SBI and IDBI was rescued using money from LIC.
- Massive Job Loss: Public Sector Banks are one of the largest employers in the country. For same asset size as compared to Private banks, Public Sector Banks tend to have more branches and create more employment opportunities. But privatisation of the public banks are done, the private banks employ far less labour than public banks which lead to a drastic loss of employment. For every Rs. 100 crores of asset, public banks employ 12 people but private banks only employ 6 people. So, if two Public Sector Banks (experts predict it will be PNB & Bank of Baroda) are privatised, these new private banks will employ only half of the total current employment. Total employment in PNB and BOB is 1,87,283 and if these two banks are privatised nearly 93000 people will loose their current job. So livelihoods of 93000 people will be destroyed by this privatisation move. Also with privatisation, the provision of reservation in bank jobs will be inapplicable forever leading to the loss of social inclusion.
- Many commentators/free market economists argue that Public Sector Banks have huge Non Performing Asset (loan not returned) so they have to privatise them as a solution for the same. Large NPAs of Public banks (Rs 7.39 lakh crores) need the following clarification. First, most of these loans were made to private infrastructure sector (Aviation, Road, Transportation, Electricity etc) and capital intensive sectors (steel etc) who failed to repay the loans. Due to externalities and peculiar nature of infrastructure sector (huge fund requirements, long gestation period, high risk, low return over long period), it is usually operated by Government only. Entry of private sector and subsequent failure of Privatisation of infrastructure sector at first place created this problem for public sector banks. Also PSBs have huge size so they tend to have larger NPAs figures corresponding to their size. Secondly, according to RBI, almost 70% of the NPAs of Public banks are due to a few big borrowers (larger corporates). Impunity enjoyed by these larger Private Corporates and the government’s inability to take strict action against them has created the NPA problem of Public Sector Banks. Third, most commentators forget to highlight that even Private Banks have huge NPAs and most of them were in deep trouble, the recent example being YES Bank. Total NPA of private banks was as huge as Rs 183604 crores in 2020. Ironically, the fifth largest private sector banks i.e. YES Bank was rescued using funds of SBI (a public bank). Now SBI owns YES Bank. So in case of private Banks, profits are privatised but losses are socialised (borne by every tax payers). Even in the past, most of the private banks which failed/went bankrupt were rescued by Public Sector Banks.
- The profit of Public Sector Banks can be utilised by government to finance various government schemes. So Public Sector Banks are national public assets which gets utilised for the benefit of larger public.
Hence privatisation of Public Sector Banks will lead to fall in security of public deposits, withdrawal of banking facilities in rural and backward areas, loss of jobs and loss of revenue for government. However, this move of privatisation of banks will greatly benefit the handful close industrialist friends of the current regime at the cost of a huge loss of public welfare.
In solidarity with the striking Bank employees of Public Sector Banks ✊✊✊
Photo credit: PTI