BIG BANG PRIVITISATION OF BANKS CAN BE HARMFUL – RBI ARTICLE

N RAJAGOPAL

In continuation of the article on Bank Workers Unity issue dated 23 07 2022 on privatisation of public sector banks – https://bankworkersunity.com/2022/01/23/reject -poonam-gupta-aravind-banariya-report/ an article in RBI bulletin August 2022 in this regard written by the researchers contradict the report of the Poonam Gupta and Arvind Panagaria. This report highlights the strength of the Public Sector Banks (PSBs) particularly in the field of financial inclusion. This report also points out that private banks’ main aim is profit maximization. No sooner this report hit the headlines of the Newspapers, RBI came out with a statement that the views expressed in this article are the personal views of the authors and not that of RBI.

A view on the RBI article is dealt here below.

Privatisation of public sector banks has been in the agenda of the successive governments at the centre, ever since the advent of neo-liberal policies. Three decades have rolled by now. Though the central rulers were not able to privatise the banks in toto they could make strident moves in that direction. Today the number of public sector banks stands reduced to 12 mainly due to merger of these banks.

Privatisation has become the buzz word worldwide and the governments have withdrawn or reduced their participation since early 1990s. Prior to Global Financial Crisis, banking was no exception, but that had to be retraced by the countries and there seems to be a renewed interest in the public ownership of banks. But in the Union budget 2021-22, the government announced its intent to take up privatisation of two PSBs.

The government’s policy prescription emphasizes that “…PSBs have underserved the economy and their stake holders” to make a case for privatisation of all PSBs excluding SBI (Gupta and Panagariya, 2022)

Pradhan Mantri Jan Dhan Yojana (PMJDY) is a classic example of how the PSBs responded to the call of the central government in its implementation. As of July 2022, more than 45 crore beneficiaries have been banked and 78% of these accounts were opened by PSBs. It is to be noted that more than 60% of such accounts were opened by the PSBs in rural and semi-urban areas, true to their character. Yet another area, which many may not be aware, is how the Private banks meet the priority sector lending target of 40%? Mostly, this target is being achieved by the Private Banks by investing in priority sector lending certificates (PSLCs). On the contrary, PSBs go in for organic lending to the priority sector, which needs skills and expertise. On Infrastructure finance, PSBs have a lion’s share in lending compared to Private Banks and more importantly against the backdrop of withering away of erstwhile development financial institutions.

Contrary to the popular belief, the RBI data showed that PSBs’ labour cost efficiency remained higher than that of Private Banks. This implies that the PSBs though incur lower cost on labour; they generate higher level of output.

Basing on the data, at the onset of global financial crisis, deposits flew out of Private Banks to PSBs. The main reason is the implicit guarantee by the government.

Privatisation is not a new concept as all these banks were in the private hands prior to the nationalisation. Most of these private banks failed, lost the confidence of the depositors, made no headway to social objectives. Big bang privatisation of PSBs can do more harm than good, the article published in RBI Bulletin of August 2022 has warned. The study shows that the PSBs have gained greater market confidence. Also the data suggests that the PSBs weathered the Covid 19 pandemic shock remarkably well. 

The Unions and Associations are up against the contemplated moves of the central government to privatise these banks. Vast majority of the Indian population were the beneficiaries of PSBs. Peoples’ movement against privatisation of banks will be the viable solution in this regard.