In 1969, engaged in a bitter power struggle with the old guard in the then ruling Congress Party, Indira Gandhi sought to burnish her pro-poor image by resorting to the simple stratagem of bank nationalisation. Fourteen banks were overnight placed under the control of babus in the finance ministry. And that has been the bane of the public sector banks ever since.
Crooks and criminals enjoying access to the ruling politicians could tap huge bank funds for the asking. Banking norms and good practices were abandoned in favour of a nod from the finance minister or his minions and even from his children. Due diligence before disbursal of tens of crores of rupees became redundant. We are all aware of the pain the criminal profligacy, nay, loot of the public sector has inflicted on the people, particularly the poor for whose sake Indira Gandhi had supposedly nationalised the banks. Eating greatly into the taxpayers’ money which otherwise would have provided vital public goods such as education and health, the Government now is hard put to recapitalise the banks which were left saddled with a humongous problem of non-performing assets.
Fortunately, since the advent of Modi as PM, the phone calls to top bank executives to sanction loans or to evergreen old ones from the FM or his office or his son have stopped immediately. Yet, the Modi Government cannot escape the responsibility of sorting out the terrible legacy of NPAs inherited from the UPA which from 2007-08 to 2012-13 swelled from some Rs 20 lakh crores to over Rs 60 lakh crores. Admittedly, the effort to pin down the defaulters has not been easy. The flight of Vijay Mallya, who left a hole of over Rs 9,000 crores with the banks, was a PR disaster for the NDA Government, though it had nothing to do with the actual sanction and disbursal of these loans which pertain to the UPA period.
Even as Mallya exploits every trick to evade extradition from the UK, a potentially bigger scandal has come to light. Reports of fraudulent withdrawal of over Rs 11,400 crores by a high-profile jeweler, Nirav Modi, from Punjab National Bank are so disturbing that these raise fresh questions marks about the continued validity of the public ownership of not only PNB but all other banks in the public sector. This is not to say that the private sector banks are immune from wrong-doing. No, they too often indulge in pandering to crony capitalists and tend to be unmindful of the aam aadmi interests. Yet, being private, there is always someone who can be held accountable and penalised by the board of directors/shareholders etc. A fall in the share price of the concerned bank following hanky-panky itself hurts the promoters who invariably are in the driving seat in the bank. In sharp contrast, the public sector banks are barely accountable to anyone in particular, with the Government feeling obliged to pump in money periodically to make up for the mismanagement and frauds of the banks.
In the post-liberalisation era, there is no rationale for the Government to directly own a major chunk of the public sector banks. Indeed, with the exception of the State Bank of India, which must necessarily stay government-controlled, all other banks must be privatised, now more than at anytime before. It is because the NDA Government has been good enough to enact the Insolvency and Bankruptcy Code, 2016, which for the first time empowers banks to extract the loaned money from the willful defaulters. The banking code and other related provisions as also a banking sector regulator fully obviate the need for government ownership of banks.
Not unlike Air India, which is deep in the red thanks to the gross mismanagement of its generalist-managers, public sector banks need to be marked out for disinvestment. If it had been a private bank, the chances are a fraudster like Nirav Modi or even a Vijay Mallya would not have been able to withdraw so much money on fake documentation. And in the unlikely event that they somehow succeeded in pulling off such a heist, several heads in the top echelons of the banks so plundered would have rolled by now. In the case of the PNB, two top executives, it seems, were in league with Modi. Their identities, whereabouts, are still unknown.
Indeed, it is not known whether Modi is here in India or has already slipped away with the loot to an exotic foreign climes from where extraditing him might prove as painful and uncertain as it is proving in the case of Mallya. Just one point: Are our rulers so dumb that they cannot learn from the periodic raids on the banks by crooked businessmen? The only remedy is privatisation and a strong regulatory control on the entire banking sector. Nothing else will prevent another Mallya or another Nirav Modi to loot and plunder the publicly-owned banks.