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Privatisation of public sector banks

In this year's general budget, the Finance Minister had said in her budget speech that two public sector banks and a public sector insurance company would be privatized. It is noteworthy that according to the current laws, in public sector banks 51 percent participation of the central government is mandatory. But as per the current announced policy, the government intends to reduce its participation to zero after the privatization of public sector banks. To implement this intention, the Banking Laws (Amendment) Bill was listed in the winter session of 2021. But for some reason it was not presented. It was being said that now this bill will be presented in the monsoon session, but it seems that this bill will not see light of the day, in this monsoon session also. Debate on privatization of public sector banks has intensified recently after Poonam Gupta, director general of the National Council of Applied Economic Research, and Arvind Panagariya of Columbia University, former vice chairman of NITI Aayog, published an academic paper. This article recommends that all public sector banks should be privatized, keeping only the State Bank of India in government’s hands. Although, it is well known that both the authors are not saying anything new, their views about privatization are well known, that they consider privatization to be the solution to all problems in all sectors including banks. Economists, obsessed with the idea of ??privatization, believe that the private sector provides the most efficient solution, as the same is market driven. Public sector cannot compete with private sector in efficiency, so we should handover all public sector establishments to private sector.

According to the directions of the Reserve Bank, efforts are made to link private banks with national objectives, but it is equally true that despite all the rules, bye-laws and instructions, way the task of financial inclusion is performed by public sector banks, private sector banks are no match for them. After Narendra Modi government came to power, Jan Dhan accounts with zero balance were opened under Pradhan Mantri Jan Dhan Yojana ( PMJDY), ensuring financial inclusion. So far, 46 crore such Jan Dhan accounts have been opened, through which not only the poor, common people have access to banks, but a large amount of direct benefit transfer by the government to these Jan Dhan accounts, which are linked with Aadhaar and mobile phones, has been made possible. Be it transfer of Kisan Samman Nidhi or transfer of COVID related cash to 20 crore women, all this has been made possible only due to Pradhan Mantri Jan Dhan Yojana ( PMJDY). But, we must understand that, today when the share of private banks in deposits and lending is around 36 percent, only 10 percent of Jan Dhan accounts have been opened by private banks. This fact speaks tons about the role of Public Sector Banks in financial inclusion.

Not only this, 90 percent livelihood loans to 6 crore women under Deendayal Antyodaya Yojana, are being provided by PSBs and regional rural banks (RRBs), sponsored by PSBs. Similarly, the task of giving loans to street vendors is also performed by public sector banks. In such a situation, naturally, the profitability of private sector banks is higher than the public sector banks, because these banks are free from the duty of financial inclusion. Government banks are bound to implement all government schemes. In such a situation, it would not be appropriate to consider private sector banks, more competent because they are earning more profit. If financial inclusion and social banking are removed from the functioning of public sector banks, their profits can also increase in leaps and bounds. There is no unanimity about handing over the public sector banks to the big industrial houses, as the same may lead to cronyism. If the promoters of private banks in the country are not in a position to buy state-owned banks, there is also a danger that the privatization of public sector banks will lead to an increase in stake of foreigners in the banking sector. Total foreign investment in private banks is above 80 percent in some cases. If we bring PSBs also under foreign influence, it can harm the country significantly, as control of financial system by foreigners will be fraught with severe dangers.

Some experts are of the view that privatization is no solution to the present day banking problems. Experience shows that the efficiency of an organization does not depend on its ownership, but on its management. If seen, after the nationalization of banks, the confidence of the general public increased in financial institutions and the mobilisation of household savings in the country increased significantly. Due to this, necessary financial resources could be mobilized for development in the country. No government bank failed due to the central government's patronage in public sector banks. Rather, in the meantime many private banks were saved from failure, thanks to interventions of PSBs.

Recently, a private bank named Lakshmi Vilas Bank had to be handed over to DSB, a Singaporean bank. In such a situation, if the financial sector of the country goes under foreign domination due to the privatization of banks, then the economy will have to suffer its consequences. Therefore, it would not be appropriate to carry out the privatization of public sector banks only on the basis of suggestions made by some institutions or some economists. It is necessary to study the changes caused by this and its possible side effects.

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