Plummeting Confidence on Banks - Moneylife

Plummeting Confidence on Banks - Moneylife


It is tough for anyone to rescue public sector banks from the shameful situation they have been dragged into by government policies or to defend the high level of bad loans they have accumulated. Since nationalisation, political leadership has been meddling with the working of public sector banks, using the ‘assumed’ ownership rights, with immunity. The miraculous survival of PSBs including SBI can be attributed to the net interest margins (NIMs) banks in India were privileged to enjoy continuously. Even during the current ‘Rajan era’, RBI has been merciful when there has been near ‘cartelisation’ when it came to passing on the benefits of lower resources cost as reduction in lending rates.
Judging the performance of banks with reference to the bad loans accumulated or the support they need from the owners, by itself, is not rational. Comparison is always with private sector banks. To get a clear picture, one has to remember that PSBs’ share in banking business is three times that of private sector banks. What prevents the private sector banks from increasing their share in business is a riddle policy makers and regulators should solve, at least at this stage, before succumbing to the pressure to again ‘privatise’ public sector banks.

It may be recalled that the context of bank nationalisation was refusal of private sector to plough back deposits mobilised from small savers to sectors that benefited inclusive
economic development. The residual and new private sector banks continued to be selective in providing credit and the social responsibility of banking system was largely met by PSBs. The corporates which did not want to follow the banking discipline used their influence to get credit from PSBs. All these together resulted in differential treatment for public and private sector banks. Given a level playing field and semblance of functional autonomy, the future of Indian banking is safe in the hands of PSBs.
M G Warrier, Mumbai


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