On July 19, 1969, the then Prime Minister of India Indira Gandhi nationalized 14 large private banks.This Month marks 51 years since that incident. Coincidentally, the nationalized banking industry is currently going through an unprecedented dilemma. As per the mega consolidation plan by Central Government, Oriental Bank of Commerce and United Bank of India merged into Punjab National Bank (PNB); Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank of India; and Allahabad Bank into Indian Bank.
Following the consolidation, there are seven large public sector banks (PSBs), and five smaller ones. There were as many as 27 PSBs in 2017. The total number of public sector banks in the country came down from 18 to 12 beginning this financial year.
It is undeniable that there is a blockade in public sector banking today.
The gross non-performing assets (NPAs) of public sector banks (PSBs) have declined by Rs 89,189 crore from a peak of more than Rs 8.95 lakh crore in March 2018 to over Rs 8.06 lakh crore in March 2019, the government told the Rajya Sabha. Higher recoveries and slowdown in fresh bad loans are likely to reduce banks non-performing loans (NPAs) to nearly 8% by March 2020, says a report. NPA in the banking system had peaked at 11.5% in March 2018 and then declined to 9.3% in March 2019. "Asset quality of banks should witness a decisive turnaround this fiscal (FY20) with gross NPAs reducing by 350 basis points (bps) over two years to around 8% by March 2020. This will be driven by a combination of reduction in fresh accretions to NPA as well as stepped up recoveries from existing NPA accounts," Crisil said in a note.
It said public sector banks (PSBs), which account for over 80% of the NPAs in the system, should see their gross NPAs climb down over 400 bps to close to 10.6% by March 2020 from a peak of 14.6% in March 2018.
As the public sector banking suffered losses due to these bad debts, there was a dilemma of capital adequacy funds from these banks.
Therefore, by international standards, these banks have been able to survive even today and here, 'How long will this continue?' This new controversy began. Frequent assistance to public sector banks from taxpayers' money is an unaffordable luxury to the budget and given this, the public sector. The privatization of banks is inevitable, argued Arivada Subramanian, the prime minister's economic advisor, and was fueled by Fiki-Assocham, an association representing large industries. As the nationalized banking industry moves towards , the discussion of the possibility of privatization of that industry is important to their voice in the decision-making process.
In order to overcome the plight of these banks, the present government took initiatives like 'Dnyansangam-1', 'Dnyansangam-2' and 'Indradhanush' in Pune. Just a 2 year ago, the caretaker finance minister convened a meeting of the heads of these banks in Mumbai-Delhi to take care of the banking industry. It is a 'strong campaign' for small and medium sized fatigue; The solution to large-scale bad debts would be the Bankruptcy Act. In short, this government has taken steps to get public sector banking out of today's unprecedented dilemma.But instead of improving, things went from bad to worst.During the same period, other government schemes increased the unique importance of banking. This government announced the Jan-Dhan scheme. After this, the government announced to classify the subsidy in the form of cash through bank accounts, then 'Mudra', an ambitious job creation scheme, as well as 'Prime Minister's Housing Scheme' and other schemes were announced.
The role of banking is very important in the implementation of all these schemes of the government as well as in deregulation. This is the role that the current government has given to banking in the Indian economy. This expected role has been best played by public sector banks only. The contribution of private sector banking in the implementation of these schemes is negligible. This is what the statistics say.
This means that even though public sector banking seems to be a failure, there is no alternative to making it a success given the needs of the economy. This requires more clarity in public banking policy.In the language of statistics, should the government make financial profit or social profit from banking?
Also what about the bank privatization that is being promoted as an alternative to bank nationalization?
In 2008 the global financial crisis happened. The crisis cost the US economy 6.14 trillion . Banks have had to pay 321 billion in fines for violating regulatory guidelines from 2009 to 2016 following the global financial crisis. Merrill Lynch, the seventh largest bank in the world, was taken over by Bank of America in September 2008, while Lehman Brothers had to declare bankruptcy. In the United States alone, the government had to announced a 700 billion bailout package to overcome bank insolvency. In other words, the government had to spend 700 billion in the budget to save these private banks from bankruptcy. According to private sources, the figure was 12.8 trillion.
In the meanwhile, when the Prime Minister of India, the Finance Minister, used to go to international meetings, he used to proudly mention that the world's banking is collapsing, but India is an exception. It is arguable that intoxicants of choice runs the taste in Indian banking. The bubble of India's private banks is also bursting. Whether it is the past history of Axis Bank or the current era of ICICI Bank, it is now clear how similar the career of these private banks is. Of course, the assumption that the ownership of banking came to the government removes all the defects in private banking and all the albels are now wrong. This is because in India, we have experienced how the policies of public sector banks are proving to be a boon to large industries at the stage of actual implementation.
Against this backdrop, 2013 Nobel Laureate Robert J. The role of 'democratization of banking' proposed by Schiller becomes more relevant. Even in 2007, 25.1 percent of low-income households in the United States did not have a bank account. Against this background, the banking industry with a so-called ingenuity and a desire for innovation.Schiller had made it clear that the services and products that have been brought in have been hampered, as well as the game of numbers and the rewards given to senior executives based on it, have put the banking system in jeopardy.
Against this backdrop, traditional banking, savings banks, common man's banking are promising. The interest on loans is at least two per cent higher than the interest on the given space. Would be democratic. Instead, we need to stop offering low interest rates that are attractive to big business. But the capitalism of the Ganges. (Crony Capitalism) Is this possible where it continues? That is the real question.
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