ISSUE DATE: December 28, 2020
UPDATED: December 18, 2020 23:41 IST
India Today magazine issue, December 28, 2020
In a move designed more to buttress her socialist credentials than for any compelling economic reason, Mrs Indira Gandhi nationalised 14 of India’s largest private banks, which held 85 per cent of the country’s deposits, in 1969. Over the years, these nationalised banks have deepened bank penetration in the rural hinterland and increased credit to agriculture, although some have argued that this could just as well have been achieved by exercising social control over private banks. Meanwhile, the collateral cost to the Indian economy has been enormous as it set in motion a gravy train on which politicians and crony businessmen have taken a free ride ever since. There have been loan melas where banks were forced to extend credit with little chance of recovery, thanks to electorally-dictated populist compulsions. Today, about 65 per cent of India’s banking sector (by deposits) is state-owned, and Indian banks were among the most unprofitable in the world in 2018-19. Run as political fiefdoms and with all the attendant inefficiencies of government-owned businesses, India’s public sector banks (PSBs) are giant black holes sucking in trillions of rupees of taxpayers’ money. The government has spent roughly Rs 3.5 lakh crore in recapitalising PSBs in the past few years. This is the entire outlay for the Jal Jeevan Mission, announced in August 2019 to provide piped drinking water to all households. This August, RBI’s annual reportsaid frauds cost banks Rs 1.86 lakh crore in FY20, of which PSBs accounted for 80 per cent. This figure is six times the government’s intended expense on women and child development. It’s a crying shame that the taxpayer should be bearing the cost of bank malfeasance when the money could be used for more meaningful purposes.