February 6, 2016

Banks and Social Responsibility

Apropos “PSBs Must Run on Biz Terms, Free Them from Social Duty: RBI’s Gandhi” (Economic Times, February 6, 2016), though the caption of the report is misleading, the message Gandhi has conveyed needs attention from stakeholders and policy makers. He said, to infuse efficiency into the working of public sector banks (PSBs), “the frictions that hinder the performance PSBs need to be completely eliminated and they should be allowed to work on commercial principles even as the costs of social banking have to be provided for separately. If that is through budgetary support the government may be more than compensated through increased revenues from and valuations of PSBs”.
As a regulator, Gandhi is making the right noises. But the PSBs have not been burdened with social responsibility all of a sudden. One has to understand the situation in which banks were nationalised. Nation had taken advantage of the banking network and their dependence on public deposits to pursue national priorities. Rightly so. Till early 1990’s Centre had owned up the responsibility to make viable activities which were not generating adequate incremental income and therefore not ‘bankable’, by providing various price and subsidy support. When agricultural loans became ‘NPAs’ for reasons beyond the control of farmers, banks which had provided credit were compensated through Agricultural and Rural debt Relief Scheme, 1990 which was fully funded by central and state governments.
In addition to defence and internal security, government has to own up responsibility for social security of the people which include an acceptable level of food security, universal healthcare, and affordable education and housing. Banks cannot be entrusted with this responsibility.  Economic development alone will not bring inclusive growth and that is the context in which economists make comparisons in terms of public spending for certain purposes as a percentage to GDP. Also, it is the responsibility of government to ensure that private sector earns profit only after meeting its social responsibility.



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