Is the privatisation of public sector banks the right way forward?

Post 11

Almost 50 years ago, India nationalized 14 commercial banks in the country, an extraordinary move, a historic event of its own. From 1947 to 1969, a whopping 665 private banks failed and people lost faith in the country’s banking system. Thus, the government had to bridge the gap. Today, 50 years later, the government is looking to reverse that decision. There are reports and suggestions by Government committees that the Government is looking to privatize all public sector banks apart from the State Bank of India. Public sector banks have been at the centre of all the recent scams. Mehul Choksi defaulted on an INR 13,500 crore loan, Vijay Mallya on loans of INR 9,000 crores, while Nirav Modi took fraudulent credit of INR 14,000 crores. The biggest lenders in all these cases were public sector banks and the government had to infuse INR 3.10 lakh crores in the last 5 years to keep them afloat, all taxpayers’ money. Thus, Government wants to step aside and hand over the banks to the private institutions, as the Government has already declared “they have no business running a business.” This won’t happen overnight, of course, but in instalments. However, the problem isn’t restricted merely to public sector banks here. Yes, Bank, ICICI Bank and several other private NBFCs have faced disasters and even collapsed. Meanwhile, Public Sector Banks also make up 85% of the total rural branches in the country and the ATM deployments in those areas. Even in the Prime Minister Jan Dhan Yojana, Public sector banks contributed by opening 44 crore bank accounts, while the private sector contributed only 3% to the total. Public sector banks also play a pivotal role in distributing subsidies, job creation, etc. The recent consolidation alone has reduced the number of employees from 8.5 lakhs in 2017, to 7.7 lakhs in 2021. Above all, there’s a huge trust deficit with private institutions as people prefer putting their hard-earned money in a bank that is backed by the government. Thus, the Government’s decision to privatise all public sector banks may not be the best foot forward.

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