Economic Highlights
New Delhi,
12 March 2018
PSBs Privatising
= Predators
COLLUSION=
BANK SWINDLES
By
Shivaji Sarkar
Is
privatization of public sector banks (PSB) the panacea? A strong lobby seems to propagate it and it
includes almost all major industry chambers and many others.
However,
Finance Minister Jaitley paid put to this by attaching highest priority to the
health of the public sector, asserting, India was not ready for PSB
privatization and the present characteristics of PSU banks would continue. “I think India still realises
that there has been a very important role that some of these banks have
performed”.
Obversely,
the private sector is projecting public sector banks per se as “inefficient” and pleading for their hand over to the
private sector for “better management as also to check frauds”. A good argument!
But does the
CRB that was liquidated about two decades bank in India qualify in that
argument? It might be remembered a few months before it collapsed a leading
news magazine had certified it as the best bank of the year. What about the
Lehman Brothers and a series of other banks and financial institutions which led
to the 2008 sub-prime crisis in the West? They were all private entities.
Moreover,
who have been defrauding banks? They forget that India has some gems of the
industries in the Navratna public
sector undertaking (PSUs).
The 1930’s
Great Depression which shook the world economy and led to World War II was the
creation of the private bank-stock market-industry collusion. That was also the
time when several Indian banks became fly-by-night operators. Whereby, many
Indians lost millions and billions as bank collapses were part of folklore and
fiction. Ditto the case in 1910 when private banks in India too failed.
The Reserve
Bank of India (RBI) history notes that between 1935-47 about 900 banks failed
and 665 banks failed between 1947-69 ie before nationalization.
Even in the
1960s some of the big banks were often media fodder for mismanagement by their
private owners. Some were rumoured to be on the verge of closure a number of
times. Other banks which included Punjab National Bank, saw depositors queuing
up to withdraw money as the bank was supposed to be in crisis.
Notably, banks
which survived on the common man’s deposits had earned the reputation of
serving only the big ones.
Moreover,
bank nationalization did not come as a sudden move or because of socialistic
fervour. It was being demanded even in 1950s as loans were difficult to get by even
depositors. Many industrial houses which had direct or indirect control over
banks were accused of accessing funds without following any written procedure.
Shockingly,
the nation came face to face with this modus operandi in the Harshad Mehta and
Ketan Parekh scams during the 1990s.
In mid
1970s, the Bank of England bailed out around 30 smaller banks and intervened to
assist 30 others even as lost about £ 100 million.
This was in the wake of the 1973-74 UK stock market crash, which hit the country
while it was already in the midst of a housing price crash. This later led to
severe inflation in UK.
Undoubtedly,
this is a phenomenon with many Indian banks having heavy exposures, post 2008
to real estate and infrastructure sectors are facing today. Succinctly, called
non-performing assets (NPAs) crisis. As the Government continues to
recapitalize, the nation sees inflation creeping in.
The
private sector had swindled banks in many ways during the last 200 years. This has
not stopped even now. The fraudsters have become sharper and mastered the art
of depriving PSBs.
Interestingly,
what Nirav Modi and Mehul Choksi did since 2006 onwards was to deprive Punjab National
Bank of Rs 11,400 crores. This was similar to what a pearl merchant did to the
Indian Specie Bank in 1913. The merchant took heavy loans from this bank and
failed to repay, leading to the collapse of the Specie Bank.
Alas, fraudsters
go on repeating history and bankers never learn from it.
The
refrain all these centuries have been one: If banks had maintained
transparency, accounts frauds could have been detected in advance. Sadly, this did
not happen. Worse, sentiments about banking mismanagement have changed very
little.
This is
the crux. The private sector has been milching public money for its own good
and driving the economy to peril. And the public sector has been finding it
difficult to save people’s money entrusted to it. The problem as Jaitley says
is not the PSBs, but how banks could save themselves from predatory practices
and trust deficit of the private sector and which include large companies
across the world.
Despite
this, the Government is considering reducing its stakes in PSBs. As it needs funds
and divestment is being resorted to raise funds to offset revenue shortfall.
This requires a wider discussion as disinvestment means increased exposure to
private players in the governance of banks.
Clearly,
the checks and balances have to be reinforced. Till now the predators are
working from the periphery. Such dilution may give them access to inner
controls.
Arguably,
would not full privatization be fine? Of course not. The nation has to realize
that this is what many of the private players want. The ponzi operators during the last 20 years, including Sahara, have
played havoc. Consequently, leaving finances to such players would be extremely
risky.
Pertinently,
PSBs are under social control and open to scrutiny while the private sector is
not open and many cover ups even in tailoring balance sheets happen despite
recent stringency in rules. The biggest example is of Satyam. Hence, handing
over nationalized banks on a platter to the predators themselves would not be
in the interest of anyone.
Frauds might
multiply but a “clean operation” could be projected for a holier than thou
approach. Finances have to be guarded. They have to be shared in widespread
areas and awareness created for savings, deposits, lending and borrowing among
all sections for overall growth and happiness. Confining it to a few hands
through privatization has always been a problem.
Further,
improved regulation is possible in the public arena. The private sector knows
how to dodge it. Yes, the PSBs need autonomy, insulation from interference, though
often it is difficult but can be ensured with a real transparent operation and
allowing employees to blow the whistle without fear of reprisal.
In sum, India
has to protect the PSBs and must not privatise them to save the wealth and
savings and ensure continuous growth of the nation. ---- INFA
(Copyright, India News & Feature Alliance)
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