Late PM Indira Gandhi had two main objectives behind privatising banks:
Thus, the idea of having one “lead bank” for every state emerged. These banks were then supposed to establish branches all over the state. These banks are essential in implementing policies even at the cost of business losses.
The Jan Dhan Yojana wouldn’t have been possible without public sector banks. These banks are, thus, important for micro-financing. Will a corporate bank that takes over PSBs be ready to provide for public welfare like them? The government may earn a few million dollars by doing so, but is it in people’s interest? What happens to the idea of a welfare state?
Out of the 12 large scale nationalised banks, the central government plans to privatise seven big scale public sector banks and keep control of the remaining five. As soon as the news spread about Bank Of Maharashtra being privatised, the Mumbai Stock Exchange witnessed a rapid increase in the bank’s share purchasing.
A few years ago, the Global Trust Bank collapsed with its share value touching almost zero and the RBI announced its subsequent merger in a nationalised bank. The next day itself, GTB was merged with the Oriental Bank of Commerce. Over 20% of the NPAs of GTB also went to OBC, thereby eclipsing its functioning.
OBC was then merged by the central government into Punjab National Bank on 1 April, 2020. This pretty much explains why there was a huge uproar with bank unions going on strikes and protesting against the privatisation misadventure.
It’s true that people have many bad experiences with the way these banks work, but we somehow seem to have misunderstood the private sector as an epitome of efficiency and good work while the government departments as old, traditional and hubs of corruption, etc. This is a very biased understanding.
Senseless and rampant privatisation of PSBs and PSUs will negatively affect the economy. When banks were nationalised way back in 1971, a common Bharatiya supported it as it was in the larger public interest. From 1970–2014 there was a rise of over 1.24 lakh bank branches all over the country, out of which 90,000 branches are of PSBs.
This led to a rise in our economy’s public savings to almost 40%, which sadly all central governments failed to utilise optimally. High profile investors were able to infiltrate the banking system and misuse public funds. Almost 7,000 companies took loans of around ₹20 lakh crore and never returned a single penny. No doubt, these acts were supported by politicians and corrupt bank officers.
In the last 7 years, instead of focussing on strict loan recoveries, big corporates were given one-time settlement options, loan waivers, tribunal settlements, writing off thousands of crores of corporate loans, “restructuring packages”, selling off NPAs to asset reconstruction companies and recovering small amounts to close the books. All these activities worsened the case of PSBs.
Way back in 1995, Manmohan Singh had announced that under no circumstances would the government shareholding in PSBs be reduced below 51%. The BJP, on the other hand, has reduced it below 26% in many cases while selling off their entire stakes in other banks.
Today the total savings in all nationalised banks amount to around ₹150 lakh crore. This enormous and cheap capital is obviously under the radars of foreign banks and international financial firms. Colluding with corrupt local elites, it’s very easy for them to take over at least some of these funds.
BJP’s last year budget mentioned that in the case of bank collapse, public savings up to ₹5 lakh would be safe and guaranteed by the government, but did not explain what would happen to those who have bank deposits above that limit. This is where the privatisation misadventure has created fears in people’s minds.
The government recently announced that private sector banks would be made part of social welfare schemes but mentioned nothing about the steps they would take if a private bank that has huge public deposits collapses. As happened in the case of Yes Bank, which had savings of many small banks, cooperatives and common people, it was saved at the last moment by the SBI intervening on behalf of the Centre, preventing Yes Bank from complete liquidation.
If something like this happens again, chances of which still seem bright, will a private sector bank jump in to save public money?
There’s absolutely no reason to oppose justified privatisation, but the selling of even profit-making, competitive enterprises cannot be supported. Keeping aside narrow-minded politics and corporate lobbying, it’s necessary to privatise public assets with utmost care and diligence.
In the garb of “minimum government and maximum governance”, important institutions have been ruined by the BJP. Flag bearers of the free economy were tight-lipped 10 years ago when world governments had to intervene to save their economies after the 2008 crisis. If it’s not the government’s business to do business, it must not be the businessman’s business to interfere in politics.
But do we see that happening in society? The LIC is the only company in the whole world that pays huge dividends to its shareholders annually out of its huge profits. This also is on the path of privatisation with two other insurance companies. The government will be selling its shareholding in LIC through the IPO process.
The LIC, as of today, has around ₹4 lakh crore as an investible surplus. It has a market share of 66% with a 12% growth rate after generating revenues of ₹3.79 lakh crore and paying over ₹2 lakh crore to policyholders. The government has also increased the FDI limit in the insurance sector from 26% to 74% — why?
The LIC was formed in 1954 by merging around 245 insurance companies back then. The poor performer IDBI was intentionally tied up with LIC later on. How did free-market activists tolerate this?
The BJP has also made false claims of not privatising strategic sectors — atomic energy, defence, railways and public transport. But we see FDI limits increasing in railways and defence, isn’t it so?
Some other sectors have been surprisingly shifted in the list of non-strategic sectors — again, no explanations given. As of 2019 — IOC, ONGC and NTPC were the top profit-generating PSUs. Their combined turnover was around ₹24 lakh crore rupees and profits showed an increase of 20%.
Minus all the expenditures, these three firms paid ₹3.68 lakh crore to the Centre as a dividend. Out of the total 348 public sector units operating right now, not all are in a bad state.
Companies like Reliance achieved market domination only after the PSU Indian Petrochemicals was sold to them at a dirt-cheap price. VSNL was sold to TATA who recovered its investment by selling VSNL properties located in Mumbai. TATA Communication closed shop soon after.
Many such examples of unnecessary government interference can be given — no prizes for guessing why this was done and for whose benefits.
The situation seems more alarming as the common people of Bharat will be the most negatively affected and have chosen to remain silent, and so it’s appropriate to call it a scam.