To bank or not to bank?

The RBI acquired the Imperial Bank of India, renaming it as State Bank of India in 1955. SBI then had 480 branches and had nearly 25% of the banking industry resources.
Indira Gandhi on 19 July 1969 nationalised 14 largest private banks in the country, an act considered to be more impactful than the reforms of 1991. The Banking industry has grown by leaps and bounds in the intervening 50 years.

However, the government felt that the bank did little to foster growth, before 1969 to promote the growth of agriculture and the small industries or encourage business growth in the rural and backward areas. The nation could not grow without the active participation of the banks. Industrial houses then owning the banks promoted their, or the interests of their cartels, thus impeding the overall growth of the economy.

However, the change of the local controllers, from ‘agents’ to ‘managers’ had their pitfalls too. The banking system under the stranglehold of the legislature and the bureaucracy, lead to a steep fall in their efficiency. It was easy for scamsters to befriend politicians and squeeze loans from the banks, often in billions of dollars. The beneficiaries never repaid these vast sums of money, which were ‘restructured,’ the interests written off and settled for as low as a fifth of the amounts lent.

Alternatively, the borrowers surrendered their shell businesses, loading the banks with hillocks of non-performing assets. These assets were again bought back at dirt-cheap prices, by benami bidders of the borrowers. The nationalised banks could not compete with the private banks but survive in India merely because Indians have no alternative to safe keep their money. The easiest business was to know a bureaucrat, take loans and scoot from the country as we have seen in the case of many infamous borrowers like Vijay Malyya or Nirav Modi.

The nationalised banks became the mode of distribution of largesse by all the Governments, famously known as ‘loan melas,’ which is going on until today. The tax-payers’ money is dispersed, fully aware that they will not return a paise. These monies are always written off with boisterous announcements in the parliament as ‘subsidies,’ to the poor and weak, to the farmers or women.

Despite all the drawbacks, what cannot be debated is the government’s guarantee of the funds deposited by the billion-plus Indians in the nationalised banks. The NPAs could be a bother but must come down with better monitoring and administration. The former chief of ICICI bank, Chanda Kochhar providing loans to Dhoot and enriching her husband in the process are now under the scrutiny of the courts. The incident proves that private banks are no less as far as mismanagement or corruption is concerned.

Privatisation, therefore, may not be the vaccine for the sickness of the banks. Any privatisation to large groups like Adani or Ambani could create colossal behemoths (they already are), which could grow to overrun the elected governments. Industries run banks is a sick idea that would become de facto governments. It will be dangerous to democracy. It seems that the government suffers from an ‘Attention Deficit Hyperactivity Disorder’ ADHD, and keep trying jugglery of many things unimportant or irrelevant to be in the news. They must attend to the graver ills facing the nation.

Let sleeping dogs lie!

Sampath Kumar
Intrépide Voix