Gopabandhu Mohapatra
July 19 is the anniversary of Bank nationalisation. On this day of 1969, Indira Gandhi, the then Prime Minister of India announced nationalisation of 14 major banks whose deposits were around Rs.50 crore. The objective of the government was the growth of economy with common people getting access to the banking facility.
In her broadcast to the nation, she summed up the objectives of nationalisation as, “The present decision to nationalise major banks is to accelerate the achievements of our social objectives”. The aim of social control was, “to regulate our social and economic life so as to attain the optimum growth rate for our economy and to prevent at the same time monopolistic trend, concentration of economic power and misdirection of resources”.
Since then, there was no looking back. The nationalized banks have played their role to perfection. Lending to masses had been successful. . Apart from priority sector lending, lead bank scheme was another feather in the cap. NABARD, SBI, public sector banks contributed immensely for the national economic development.
The target of mass financial assistance was fulfilled to a great extent. Nationalised banks drew up a number of schemes to assist new types of customers.
But on its 50th year of nationalisation, the banking system is at the crossroads and needs a thorough revamp. In the golden jubilee year of bank nationalization, banks themselves have little to celebrate about.
During the first decade, the challenge was to change the mindset and meet the goals of nationalization. NABARD was set up as a statutory body. Schemes such as IRDP, SEEUY, DRI were introduced. This period also saw modifications to certain institutional mechanisms like the lead bank scheme, service area planning, and regional rural banks.
The second decade saw a spurt in social lending, project finance for agriculture, Small and marginal farmers benefitted and there was more lending to small scale industries.
The third decade changed the texture of banking in India. The Narasimham Committee recommended more space for private banks to usher in a spirit of competitiveness among PSBs . IRAC norms were introduced. Banks’ profitability and viability came to the fore front. Banks started viewing rural lending portfolios and rural branches as unviable. This period also witnessed the resurgence of private banking with entrants ICICI, HDFC Bank, UTI Bank etc. Retail banking and housing finance gained prominence in the lending portfolio. Micro finance institutions also made an aggressive push in the finance space.
The fourth decade saw a surge in arm-chair lending and template-based lending. Systems started replacing humans in intelligent appraisal of loans. Asset reconstruction companies were born following the enactment of SARFAESI Act 2002. The Indian financial sector also proved its resilience during the 2008 global crisis. Net banking made banks close the time gaps in serving customers, mainly urban-based and computer savvy. The number of ATMs also grew exponentially.
The fifth decade saw the progressive downfall of the banking system. Weak corporate debt restructuring (CDR) system and RBI’s asset quality review, dubious lending to the corporate entities, poor surveillance, unconcerned boards and poor governance led to the 10-trillion bad loans mess. This decade brought into light exposing the gaps in regulation as names like through Vijay Mallya, Nirav Modi and Mehul Choksi surfaced. Public savings should be made available for national development and not for private corporate loot. Banking credit should be for empowering people and not for embezzlement by private companies.
Demonetisation exposed the infrastructural inadequacies in the banking system and banks struggled to retain profits and started fleecing the customers with high service charges. Today, banks do more non-banking business with hefty commissions and hence have increasingly started facing trust issues with their customers. Adoption of pro-people banking policies is the need of the hour, so that people’s savings are utilised for their welfare.
Government now wants to merge banks in the name of global competition and they are eager to grant banking licenses to big corporate houses.. They want to phase out priority sector lending and dilute public sector banks’ social banking orientation. They want to make banks more urban, elite-oriented and profit-based. They are willing to write-off huge loans of corporate houses from hard earned profits of public sector banks and to improve profitability by outsourcing banking jobs on a contract basis. In short, they want to turn the clock back to the pre-1969 days.
In the 50th year of bank nationalization, , let the sector rededicate itself to the cause of common people and take a pledge to protect its public sector status. The credit goes to the entire work force of more than 10 lakhs in the banking Industry for taking the Banking services to every nook and corner of the country.