Bad Credit Loans Online – Privatizing Public Sector Banks Is Not A Good Idea | Zoom Fintech
Why does the government want to sell public sector banks? Are they no longer serving the public interest? Will their profitability increase under private ownership, and who will distribute this profit? Will depositors’ money be safer under private management?
The government should answer these questions before moving forward with its plan to privatize two PSBs, in addition to IDBI, this tax system. His obsession with privatization should not blind him to the failures of private banks and the achievements of PSBs.
The rapid expansion of the branch network was the main achievement in the nationalization of banks. In September 2020, the number of bank branches reached 1,60,827, compared to only 8,187 before the nationalization of banks in 1969.
In rural areas, the number of bank branches increased from 1,443 in 1969 to 52,632 in September 2020, raising the share of rural branches from 17.6% to 32.72%. It is another matter that the rural share fell from the peak of 58.2 percent in 1990 after banking “reforms”.
The outstanding credit of regular banks increased from 3,987 crore in 1969 to 1,007,04.649 crore on January 1, 2021, and deposits increased from 3,035 crore to 1,47 26,753 crore (75.59% of GDP).
Private bank deposits, as of March 2020, amounted to 40,40424 crore (30.88% share in total) compared to 90,443,443 crore (69.12%). Their outstanding loan was 37 07 435 crore (36.79%) against 63 71 042 crore of (63.21%).
The coverage of rural areas by public sector banks was much better than that of their private sector counterparts. PSBs (including RRBs) have 44,397 rural branches (84.35 percent of total rural branches) while private banks have only 8,235 rural branches with a rural share of 15.65 percent. However, the current 52,000 rural agencies (both PSBs and private banks) vis à vis villages over six lakh in the country have no bank branches in at least 87 percent of the villages.
In addition, private banks are lagging behind in the roll-out of rural ATMs, with a total of 6,112 (18.34%) rural ATMs of 33,312, at the end of 2020.
When it comes to profits, private banks can never compete with PSBs in the true sense of the word, due to the greater risk-taking capacity of PSBs and the dual nature of their profitability – social and business benefits. .
Social profit includes improving the accessibility of banking services in unbanked areas and to the weaker sections of society; this type of profit is intangible and measured in terms of increased income, production and employment in the country.
The very need for nationalization arose out of the failure of the private sector in the area of commercial viability and protection of depositors’ money, let alone social profit.
Nationalized banks bailed out failed private banks. Twenty-five private banks merged with the PSBs from 1969 to 2020 according to the AIBEA compilation; the bailout of YES Bank by the State Bank of India is the latest example.
Returning to social profit, three other achievements of the PSBs, in addition to their dissemination in unbanked and rural areas, deserve a mention.
First, they manage 97.2% of Jan-Dhan 41.98 crore accounts in the country. Their share of these accounts in rural areas is even higher, at 97.50 percent compared to 2.5 percent for private banks.
Second, PSBs (including RRBs) have linked more than 80 lakh self-help groups to banks (78 percent of the 1.02 crore total). The outstanding SHG loans of these banks amounted to 94,291 crore as of March 31, 2020 (87.25% of the total of 1.08 lakh ₹ crore) against the share of private banks of barely 7% of the number of 6.70% in value.
And, more importantly, PSB support for agriculture. Their outstanding agricultural credit stood at 4,50,207 crore (86.6 percent of total credit to agriculture) in March 2020 compared to 72,893 crore for private banks (13.94%).
Despite higher social responsibility, PSB operating profits over the five years 2015-2016 to 2019-2020 totaled 7,777,043 crore. The huge provisioning, 9,843,775 crore towards bad debts, pushed them into the red – a net loss of 2,073,772 crore.
Bank unions say the losses were largely caused by willful defaulters – those who had the capacity to repay but chose to opt out. And they claim that most of these bad debts are owned by private companies. The amount of bad debts written off from 2001 to 2019 was 6,94,037 crore.
Non-performing assets (NPAs), as the Economic Survey 2020-21 shows, are not exclusively generated in PSBs. Private bank NPAs up to March 2020 stood at 2,05,848 crore compared to 6,87,317 crore in PSBs.
Loans became bad due to default by corporate clients; the amortized sum of 50 corporate clients amounts to 68,607 crore. The idea of transferring ownership of the bank to defaulters therefore makes no sense.
The right solution to correct the functioning of the PSBs would be to put in place better regulatory and control mechanisms. If the government finds flaws in the functioning of the PSBs, it has every reason to correct them, but it must not throw the baby out with the bathwater. On the contrary, there are all the reasons and all the possibilities to nationalize private banks, and not the other way around, if public and government interests converge.
The writer is a development economist and commentator on economic and social affairs