— Hemindra Hazari writes:
The Punjab National Bank (PNB) Nirav Modi scam has led to a clamour from certain quarters for the privatization of India’s Government banks. It was only to be expected that Assocham , the corporate sector body, saw in this development a chance to ask for the privatization of Government banks, since some of its members might be interested in buying some of them up at cut-rate prices. Arvind Subramanian, Chief Economic Adviser, who had earlier argued for the closure of Government banks in order to allow private banks to increase their market share, has renewed his argument recently by asking, “first, if not now, when? second, if not this, what?”. Shekhar Gupta has made the astounding claim that India’s Government banks have a 47-year record of scams. Adi Godrej, chairman of the Godrej group, pitched in for privatization with an equally preposterous claim that “I have not heard of any major scams by the private bank.(sic) There is always something going wrong in companies from time to time, but it’s always more controlled in the private sector if at all and much better managed.” Ravi Venkatesan, the chairman of the Government-owned Bank of Baroda, no less, also contributed with “privatization of at least a few big banks is probably the only solution.” The nation is being warned that the fate that befell PNB will befall the entire Government banking sector, and private ownership is the only solution to provide sound management.
The underlying belief of the school of privatization of Government banks is that bank nationalization was a national folly in 1969, which bred managerial incompetence, moral hazard, a drain on the exchequer’s resources and crony capitalism. The protagonists of the privatization of Government banks fail to acknowledge the fact that before nationalization private sector banks were not reaching banking services to the agrarian sector and small industries, nor contributing to a more balanced development of the economy. They ignore the fact that the banking sector was rife with mismanagement: in the two decades before nationalization, 736 banks either failed or had to be taken over by other banks. (more…)
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