Here's why Communist Party of India opposes privatisation of PSBs

D Raja, CPI leader
Prominent opposition parties say that they will oppose any move to privatize public sector banks (PSBs). The issue is set to be raised during the Budget session of Parliament, which will resume on March 5.

In July 1969, the Indira Gandhi Government nationalized 14 major banks. In 1980, another six banks were nationalized. The Communist Party of India (CPI) had played a key role in the 1969 decision and continues to oppose any de-nationalisation of PSBs.

“All the banks were in the private sector at the time of independence. As India adopted planned development, funds were required for long-term projects but the private banks didn’t extend loans,” CPI Leader D Raja says.

In 1951, the Centre appointed the Rural Credit Survey Committee. The committee found that rural areas were starved of bank credit.

In 1955, the Imperial Bank was transformed into the State Bank of India. “This was to facilitate opening of rural branches, but only a few branches were opened. The needs of rural areas, more credit to agriculture sector, credit for small scale industries for employment generation, remained unmet,” Raja says.

In 1967, the Congress performed poorly in several states in that year’s assembly elections. “It felt the need to adopt pro-poor policies to reach out to the poorer sections. Supported by the CPI, Prime Minister Indira Gandhi proposed nationalization of banks and abolition of privy purses. Morarji Desai opposed the move,” Raja says.

Subsequently, the Congress witnessed a split, but Indira Gandhi, with the support of the CPI in Parliament, pushed through bank nationalisation. In 1975, Regional Rural Banks were started to serve rural areas.

“Today, two-thirds of the banking is in the public sector. From 8,000 branches, the number has now increased to 85,000 branches. Deposits now stand at Rs 110 trillion. Loans have increased from Rs 35 billion in 1969 to Rs 75 trillion,” the CPI leader says.

In the year 2000, the Atal Bihari Vajpayee-led NDA Government brought a Bill in Parliament with the objective to privatize banks. The Bill faced stiff opposition from the CPI and others and was buried.

“Today, NPAs (non-performing assets) or bad loans are a big issue and stand at Rs 9.5 trillion. The defaulters are big corporates. While they receive waivers and write-offs, poorer borrowers are harassed. People have a right to know what is happening in banks,” Raja says.

The CPI leader says the Punjab National Bank (PNB) fraud “is no doubt shameful and alarming”, but it isn’t the first. There have been previous occasions, most notably Harshad Mehta, Ketan Parekh and Vijay Mallya, where people have cheated banks.

“Subsequent governments have not learnt any lessons, and as a result another big fraud has taken place. This government also wants to show that lower level officers have done it. This is not possible. There is a system of audits in place. The truth will not remain hidden. A CBI inquiry is on, and we have demanded a joint parliamentary committee (JPC) probe,” Raja says.

He says succeeding governments have pushed for more technology in the banking sector to prevent fraud, and the unions have agreed. “But frauds continue to take place,” he says, adding that people like jeweller Nirav Modi are influential, with political connections. “Take action against the erring officials. But it cannot stop there. A thorough inquiry is required,” he says.

The communist leader finds it “strange and interesting” that the Associated Chamber of Commerce has demanded privatisation of banks in view of the PNB fraud, but it has conveniently forgotten the track record of private banks in India.

According to the data collected by Raja, since 1969 as many as 36 private banks have been put under moratorium in public interest due to mismanagement, and have ceased to exist.

He says that in 20 years from 1948 to 1968, 736 private banks either failed, or were amalgamated, or had either ceased to function or transferred their liabilities and assets.

“If private banks are really efficient, why these banks were closed down and merged with others. Most of these banks were merged with PSBs. While I understand Assocham’s greed, but they cannot claim that private banks are more efficient,” Raja says.

On the issue of “alarmingly increasing bad loans in banks”, Raja asks: “Who are the delinquents and who are the defaulters? Are all of them not private companies, industrialists and corporate houses?”

He says 12 cases of NPAs have been referred to the National Company Law Tribunal (NCLT) for insolvency and bankruptcy proceedings involving Rs 2.53 trillion. “Are all of them not top private corporate borrowers? Why didn’t they repay their loans? Is it their efficiency? Should banks be privatized and handed over to these people?” he asks.

Raja says the bulk of the loans given by PSBs are to private corporate houses. “If the PSBs are not efficient then why avail these loans from PSBs and not from private banks. Yes, there is a need to take action on officials who went out of their way to favour Nirav Modi. But isn’t it true that a private corporate run by Nirav Modi tempted and influenced them. Devil should not quote scriptures,” he says.

Raja says Assocham and other industry chambers should ask private sector corporate defaulters to repay the bank loans to the PSBs and condemn Nirav Modi for the fraud he has committed on PNB.

Raja says there is no need for privatisation of banks. “Our banks have to be further strengthened,” he says.

1 1969 Bank of Bihar  
2 1970 National Bank of Lahore  
3 1971 Eastern Bank  
4 1974 Krishnarao Baldev Bank  
5 1976 Belgaum Bank  
6 1985 Lakshmi Commercial Bank  
7 1986 Miraj State Bank  
8 1986 Hindustan Commercial Bank  
9 1990 Traders Bank Limited  
10 1990 Bank of Tamilnad  
11 1990 Bank of Thanjavur  
12 1991 Parur Central Bank  
13 1991 Purbanchal Bank  
14 1993 Bank of Karad Limited  
15 1995 Kashinath Seth Bank  
16 1997 Punjab Cooperative Bank Limited  
17 1997 Bari Doab Bank  
18 1999 Bareilly Bank Limited  
19 1999 20th Century Finance Corporation Limited  
20 1999 British Bank of Middle East  
21 1999 Sikkim Bank Limited  
22 2000 Times Bank Limited  
23 2001 Bank of Madura  
24 2002 Benares State Bank Limited  
25 2003 Nedungadi Bank Limited  
26 2004 South Gujarat Local Area Bank  
27 2004 Bank Muscat SAOG  
28 2004 Global Trust Bank  
29 2006 Bank of Punjab  
30 2006 Ganesh Bank of Kurundwad  
31 2006 UFJ Bank Limited  
32 2007 United Western Bank  
33 2007 Lord Krishna Bank  
34 2007 Sangli Bank  
35 2007 Bharat Overseas Bank  
36 2008 Centurion Bank of Punjab  

Total 36  

Year Number of private banks failed/amalgamated, etc
1948 45
1949 55
1950 45
1951 60
1952 31
1953 31
1954 27
1955 29
1956 28
1957 30
1958 28
1959 38
1960 26
1961 47
1962 33
1963 20
1964 82
1965 42
1966 17
1967 15
1968 7
In 20 years 736 private banks

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