Page 38 - English Tehelka Issue 6 - March 31, 2018

banking

to democracy itself.” of public sector sloth and corruption only now facing fraud charges over steps to improve governance stand-
“Despite a sticky systemic NPA but of private sector greed and poor activities carried out in 2008. The pri- ards need to be taken immediately to
issue with PSB for five years, we have regulation. Lehman Brothers went vate sector banks or the new genera- cleanse and revive this crucial sector
had no run on a bank, no stress in belly up, without any state ownership. tion banks are certainly not the holy of the economy.
the money markets and limited Royal Bank of Scotland and Barclays cows immune to the same problems
impact on growth. While there are avoided collapse by taking govern- that plague the public sector entities. Why PSB’s?
many reasons for this, a big reason ment equity. Private banks, too, have their share of It is worth mentioning that ever since
has been state ownership of the “It is not ownership but the quality bad loans. the Indian government nationalised
banking system. It has meant that of regulation, reporting andman- The recent half-year financial the Imperial Bank of India in 1955
bank liabilities have implicit sover- agement that determine banking stability report by the RBI noted that and re-christened it State Bank of
eign guarantee, which maintained efficiency. Closer home,privately- the rate of increase of NPAs was 40.8 India, public sector banks (PSBs) have
confidence of the markets in the owned Global Trust Bank and Bank per cent for private sector banks as continued to be of immense systemic
banking system,” it added. of Rajasthan had to berescued with against 17 per cent for public sector importance. This was further rein-
state support. The reason for the banks on a year-on-year basis in forced during the nationalisation of
Privatisation opposed above is quite simple — banking isn’t September 2017. It also disclosed that banks in 1969 and again in 1980.
Opposing the talk about privatisation the same as soaps, or steel, or hotels,” all top private sector lenders, includ- Today, despite their shrinking
of PSBs, the bank officers confedera- the bankofficers’ confederation said. ing ICICI Bank, Axis Bank, Yes Bank market share, PSBs continue to be
tion says, “We need better banking, According to AIBOC, banking bailouts and HDFC Bank, had under-reported very important for the economy,
better reporting, better supervision inIndia have been quite modest in their dud assets in the first two quar- particularly one like India. With
and better technology in aid of these. terms of their impact, both in termsof ters of the fiscal. In other words, the their widespread and far-reaching
What we need is to ignore the cry direct fiscal costs as well as indirect private banks renowned for their network, PSBs are the only source
to privatise PSBs, as if ownership costs to the economy. AnIMF Work- speed and efficiency in contrast to the of financial connectivity for large
uniquely determines ethics and ing Paper on Systemic Banking Crisis, tortoise-like pace of the state-owned swathes of the population, mobilising
efficiency. The popular chestnut is covering all banking andsovereign banks are in the grip of the same deposits as well as providing credit
that PSBs are structurally vulner- crises between 1970 and 2011, brings malaise of mounting bad loans as for productive sectors. These banks
able to poor governance, resulting in out the data starkly. the latter. have been the backbone of the finan-
the run-up inNPAs. Data, yet again, The average fiscal cost of bank cial social agenda for the govern-
militate against the hypothesis. While bailouts across the world was 6.8 per What the Govt needs to do ment, including being the frontrun-
theremight be cases of fraudulent be- cent of GDP between 1970 and 2011. Privatisation, then, is not the over- ners of the Jan Dhan Yojana.
haviour, they are not the overwhelm- For emerging economies, the cost arching solution to all the woes facing In any particular rural area, the
ingcause for the accretion of NPAs was 10 per cent of GDP. For India, the government-owned bank indus- role of a PSB is not confined to bank-
in PSB. Second, cases of governance- in the same period, bank bailouts the government, amounting to Rs • banking on moves RBI has initiated special try. It is undoubtedly true that a major ing but encompasses a more holistic
breakdowns are not a monopoly of cost far less than 1 per cent of GDP, a 2.11 lakh crore over two years, would audit of state-owned lenders with focus on restructuring is needed in the opera- developmental agenda. They are the
PSB — globally and in India, man- negligible amount. “The current PSB account for less than 0.5 per cent of trade financing activities tions and performance levels of these one-stop shop for all financial needs
yprivately-owned banks have been recapitalisation plan announced by current year GDP, and less than 0.25 banks. The government needs to take of the local rural populace including
regularly identified with such errors per cent annualised for two years. up the issue of reviving the banking insurance, financial literacy, remit-
of omission and commissions. Global Further, India’s bank bailouts have sector banks need to be repaired sector in all seriousness. Privatisation tance amongst others.
regulatory fines on banks run into extracted far less cost out of the rather than resorting to privatisation. is surely not the way forward. But The strong uptake of payment
many billions of dollars every year.” Those who insist Indian economy than bank stress The recession was primarily the banks licence indicates the vast
The Economic Survey 2016-17 situations elsewhere,” AIBOC added. result of the international financial unmet demand that still exists in
studied the causes of the large NPA on privatisation Those who insist on privatisation institutions which failed and at the India’s rural areas and provides a
build-up in PSB. A very large part of of public sector of public sector banks opine that time were in the private sector. This The rate of significant opportunity for PSBs to
it can be attributed to a growth—in- bank operations are overly con- includes the iconic Lehman Brothers capture this. Clearly, the importance
duced credit bubble, followed by banks opine that trolled by the government, leading and Bear Stearns which collapsed increase of NPAs of PSBs in India even today cannot be
macroeconomic and regulatory bank operations to their manipulation by powerful while others like Merrill Lynch, AIG, was 40.8 per cent belittled. The Indian economy needs
issues that burst the bubble rudely. political lobbies. Public sector banks and the mortgage lending institu- a strong banking system to continue
Corruption and malfeasance were are overly are indeed vulnerable to pulls and tions, Fannie Mae and Freddie Mac, for private sector and expand on the current growth
not identified as a key variable. In controlled by the pressures from the government and had to be rescued by the state. Apart banks as against trajectory and the PSBs play a signifi-
2008, a raft of European and Ameri- tempted by manipulative corpo- from the 2008 financial crisis, there cant role in this. As the bulwark of
can banks, all privately owned, had govt, leading to rates. These may have created many have been many instances of bank 17 per cent for financial services available to India’s
to be bailed out by governments. their manipulation lacunas in the banking system which frauds leading to closures such as public sector rural masses, PSBs form the back-
The list of institutions bailed out can be exploited by some greedy Barings Bank which had to down bone of the growth emanating from
included some of the best known by powerful businessmen in connivance with a shutters due to the activity of a single banks in Sept India’s villages.
brands in the business. The financial political lobbies handful of corrupt bankers. But these rogue trader. Officials of Barclays 2017
crisis of 2007-08 was the result not fractures in the structures of public Bank of the UK are reported to be letters@tehelka.com

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