In 1969, 14 banks were nationalized by former prime minister Indira Gandhi. The argument was that the banking sector was not working rapidly enough in spreading credit availability across the state. The then finance minister Morarji Desai was not in favour of the same and denied to consider the proposal. However, on July 19, 1969, the banking companies converted to the public sector banks being transferred to the state and again in 1980, 6 more banks were nationalized. In 1955, the Imperial bank was converted to State Bank of India. With 27 nationalized banks, the government has control over the almost 70-75% wealth deposit. With the help of RBI, the government can make the decision regarding these national banks like recruitment processes, recapitalization, loan etc.

There is a question mark on the sustainability of country’s banking system. According to financial stability report released on June 30, 2017, RBI gave an indication that the sector is under the severe stress, with the problem of the bad loan and bank frauds, with other issues.

In a recent report by CARE rating, India has been ranked fifth on the list of countries with highest Non-performing Assets (NPA). NPA is nothing but the set of the bad loan and bad assets. As RBI reported that the total amount of these bad loans is around Rs. 7.34 lakh crore by the end of June 2017.

Finance ministry cited RBI, 77% of total gross NPA is on the leading corporate sector of India. SBI has highest NPA around Rs.93,000crores and PNB has around Rs.57,630 crore and so on.

Bad loans have been making news for months now. Jeweller Nirav Modi has left the country with having loan Rs 11356 crore and denied to return it to the PNB. And in 2016, The notorious liquor baron Vijay Mallya’s company defaulted loan of Rs 9,000 crore, before he fled to the UK. However, if you will see the full list of defaulters’ lists then you will find that Nirav and Mallya are just small fish in a pond of bad loans. In 2015, The Supreme Court ruling made it mandatory for all banks to disclose the names of the defaulters. But almost all banks have not shown clearly the full list of actual defaulters so far.

According to The Credit Suisse report, we came to know about famous corporate defaulters in March 2016. Anil Ambani-led Reliance Group owes the banks, Rs 1.25 lakh crore, the largest amount owed by any company, according to the report, The GVK group in a large Indian conglomerate founded by Gunupati Venkata Krishna Reddy and the total amount of money owed by the company is Rs 33,933 crore, Videocon group owes the banks about Rs 45,405 crore, Lanco group owes Rs 47,102 crore the banks, GMR Group company owe Rs 47,976 crore to the banks, Sajjan Jindal’s JSW Group owe Rs 58,171 crores. He organized a meeting between Prime Minister Narendra Modi and his Pakistani counterpart, Nawaz Sharif, Jaypee Group has cost the banks Rs 75,163 crore, Adani Group has defaulted on Rs 96,031 crore of the banks’ money, Essar Group balance sheet shows a debt worth Rs 1.01 lakh crore, Vedanta Group owes the banks nearly Rs 1.03 lakh crore.

The government is unable to make these corporate sectors return the money and moreover, thousands crore of loan has been waived in previous five years still NPA is increasing. To overcome this problem government decided to the recapitalisation of the PSBs by infusing public money Rs 2.11 lakh crore. This infusion of money will not help to overcome the banking sectors situation until the defaulter would not be put behind the bars because the government will again give them the loan and again NPA problem will be there and so on.

It is not surprising that some agency like FICCI has given suggestion to privatise these public sectors banks means PSBs should be given in the hands of the private firm like those who already have increased the NPA or has been declared as defaulters. Private banks are also facing the same problem of NPA through the net value is less than the PSBs that is around Rs 1 lakh crore. If privatisation is good then why these private companies are failed to pay back the banks loan?

Most of the private sector firms of India are under debt then how we can assure that private banking system will work smoothly. As we already know, in European Union, banks were private then still, to strengthen those banks from banking crisis like NPA and bad assets, the government had to recapitalise by infusing the money.

What does it mean by privatising the PSBs in simple words? It means that due to fear of thieves, we should give them keys of our house instead of putting them behind the bars.

Indian government should learn from China which has much larger economy than India how they have controlled this NPA. China has only 1.75 NPA ratio in place of India has 9.85. According to latest BBC report, recently, Chinese Supreme People’s court has prepared a list of 67 lakh loan big defaulters. According to Global Times report, the Chinese government has banned the tickets of 61.5 lakhs defaulters by air and 22.2 lakhs by superfast trains even they can not stay in five-star hostels, they can not make their children admit in rich schools. So instead of privatising public sector banks government should be strict toward these defaulters and take action like China.

Source:- Various newspapers including Livemints, BBC, Business today, India.com and rest of Views are personal.

Author – Vishwa Sodan (Ph.D., Indian Institute of Technology)

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