Should banks be de-nationalised

HDFC Bank's Chairman Deepak Parekh, while delivering lecture at Indian Merchant Chambers, criticised RBI's Asset Quality Review which landed banks, especially  PSU banks, in deep loses in December,2015 quarter. RBI Governor Raghuram Rajan had already termed bad debt recognition as an anaesthetic need for deep surgery (cleaning up balance sheets). Parekh said, "...too much of anaesthesia can also result in patient becoming comatose".

The issue is in the absence of complete surgery, patient will never be able to lead a healthy life, he will always be limping. Better to die than to limp the rest of one's life. If the PSU banks cannot survive the full balance sheet cleaning process, as is the the spirit of Parekh lecture,  then why should we not call a debate whether nationalisation tag for banks is still required. The arguments in favour may be as below:-

1.    P J Nayak Committee, to Review Governance of Boards of Banks in India, had suggested scrapping and removal of Bank Nationalisation Act, SBI Act and SBI (Subsidiary Act) - because these acts require government to keep its shareholding above 50%.

2.    Deepak Parekh himself has suggested government to allow private sector talent to come in to run PSU banks and also the prospective investors' role in running banks.

3.    It is said in favour of PSU banks that there is a social tag attached to them. These banks are instrumental in giving priority sector loans to the small borrowers and also in the development of nation as these are the major providers of infrastructure and project finance. But here, they have hugely suffered on account of these loans. RBI has already provided licenses to small banks to take care of priority sector. RBI can also give licenses for Infrastructure  or Development banks whose major areas of operations  will be in these sectors. Moreover, when all banks are in private sector, we should not apprehend that infrastructure and project finance will stop altogether. Where banks will deploy their huge deposits. Like mutual funds, let the public decide in which sector their deposits  be deployed.

4.    Again, PSU banks play key role in financial inclusion. But, Payment Banks are coming to take over this responsibility.

5.    As per estimates, PSU banks require approximately Rs 1.80 lac crore of fresh capital during next four years, FY 2019, and government has proposed to give Rs 70000 crore. If government divests its existing equity in PSU banks, it will get fresh funds and save Rs 70,000 crore also for nation building.

6.    In 1969 when banks were nationalised, private sector was not well equipped, capitalised and mature enough for social and infra financing. Now position has changed, rather PSU banks have become old as compared  to young and vibrant private banks.

7.    It is well said,"government is to govern and not to do business".

I initiate this debate for healthy participation.

(The views expressed in the article are merely for academic purpose and are not subscribed by the organisation where the author is working)

Tilak Gulati, Assistant General Manager, UCO Bank.

Author:  www.itstrgulati.blogspot.in