Privatisation of public sector banks fraught with huge risks

On the second day of the nationwide strike in banks against privatisation of the proposed Public Sector Banks (PSBs), Union Finance Minister Nirmala Sitharaman made a statement that the interests of workers of such banks will be completely protected. What would be a better example of narrowness of the mindset with which our government is functioning?

Privatisation of PSBs is not all about its employees; it is about equitable access to finance for all, keeping financial services affordable, security for the depositors money, and finally the interest of the nation and its people.

The Finance Minister, while addressing the media after announcing Cabinet decisions on March 16, said, “I want to assure it is not that the institutions are being closed or workers are going to be removed. Whether it is the salaries or scale or pension of employees, all will be taken care of.” She tried to give an impression through her statement that bank employees are agitating for their self-interest in terms of salaries, pensions, jobs etc, and hence her assurance.

However, it is factually wrong. Bank Unions are agitating against privatisation of PSBs, and losses to the existing employees are only a few of their reasons among many others in support of their primary demand of ‘stop privatisation’. The fear of the striking employees goes beyond their present fate to the future employees, and also to the future of the citizens of the country. Nirmala Sitharaman just tried to assure on their self interest and kept mum on the larger issues involved in the privatisation of PSBs.

“We have announced a Public Enterprise Policy and identified four areas where public sector presence will be there. Financial sector too is included in this. But, not all banks are going to be privatized,” she said. Her statement clearly indicates that the government will go ahead with privatising select PSBs, despite the unprecedented two days strike of Bank Unions in which about 10 lakh employees of PSBs participated.

The Bank Unions are supported also by 10 Central Trade Unions and Samyukta Kisan Morcha, an umbrella organization of farmers’ unions who observed March 15 as Anti-privatisation Day coinciding with the first day of nationwide PSBs strike.

General Insurance Corporation (GIC) and Life Insurance Corporation (LIC) employees unions have called for nationwide strike on March 17 and 18 respectively. All are united, and all are against large scale privatisation of various sectors in favour of corporate sector coupled with other issues intimately related to this bigger one such as demands for roll back of three farm laws that seek to bring corporates to farms, and four labour codes that give certain unbridled power to corporates, businesses, and industries over workforce.

The agitators are planning for bigger combative struggles, protests, and strikes in the days to come, while government is hell bent on privatising the public sector in a big way. The unrest among the employees, workers, and farmers has a propensity to escalate into public unrest in near future. It can never be in the interest of the nation.

Before any analysis of privatisation of the PSBs, one must take note of some general trend. An IMF research paper published recently has warned that rise of the corporate power has become a threat for economic recovery. The coronavirus pandemic has impacted economy with contraction, closure of millions of MSMEs, and massive job losses in almost every sector of the economy. It is therefore not an opportune time for privatisation of Public Sector Undertakings (PSEs) and allow the rising corporate powers to take over them that has already started threatening even the economic recovery.

Privatisation of PSBs must be seen in this overall context. If the PSBs are to be privatised, who would get control over them? The corporates, that too the bigger ones. Many companies in corporate and private sectors, and also MSMEs are struggling for their own survival. They need financial support from the government and banks, which they have not been getting easily even now, despite government’s guarantee schemes and the bank officials in governments control.

Just imagine, what will happen if government control over the bank official ceases to be and private corporate officials will be calling the shots. They will have only one consideration of profitability. They would allow financial access to only those who would give them profits. They may also obstruct the financial access to others.

We also know that some companies purchase other companies only to shut them afterwards. We can give several examples when corporates did such things. It may thus distort fair competition and subsequently the market adversely affecting the common people, and the option of the government intervention would not be there even for stabilizing the situation.

In the present context of pandemic-induced sickness of the companies in private sector, many would be going for bankruptcy benefit. In case of privatisation of PSBs, many companies may not be getting even justified help from the government and the banks from where they have been doing business prior to their becoming miserable for no fault of their own management, but because of the factors beyond their control.

In such a scenario, many of the viable MSMEs, private sector companies, and even informal sector ventures would not be able to restore their health and ultimately would die. Many others may get financial access at higher costs that may make productions costly and their survival difficult. Can we then ever recover from the massive job loss? Very unlikely.

Now let us come to the common people, especially the farmers and the poor artisans in the villages and urban areas. It must be remembered that nationalisation of banks in the country in late 1960s has made their access to finance easier, though it took about two decades to provide collateral free loans to many of the needy. Many poor people do not possess any property to pledge while applying for bank loans.

Our national experience and data show that such poor people are far better than the rich in returning their loans, which can be verified by anyone. One can see the records of SHGs, artisans, small business et al. They get loans through PSBs at rates that they are somehow able to return, though these are still higher than the rates available for big private companies.

The injustice is still unaddressed. What would happen when the PSBs become private sector banks? Farmers getting loan waiver are very small compared to the write-off benefits given to the big companies. The help to farmers is in fact a subsidy for food items that keep them cheaper for common people. It is still not clear what would happen to the loans to farmers when they take it from a private sector bank at higher rates. Lakhs of farmers have reportedly committed suicides after falling in the debt trap, especially loans from private people/entities.

It may also be noted that majority of the people are not in a position to keep their saving in their homes. They deposit in banks. Bank services have been becoming costlier under Modi Raj even in the PSBs. They would certainly become even further costlier in private hands.

Finally, the question of security of the deposits is most worrisome. A recent IMF study says that banks are most threatened entities becoming target of cyber criminals. Can we believe that private sector banks would be able to protect depositors’ money, or will compensate the loss?

Privatisation of PSBs have many other risks and we have already seen what was happening in private sector banks before nationalisation, and frauds to which depositors were subjected after liberalisation in the financial sector by several non-banking institutions and other private companies. Let us allow fair competition between public and private sector banks, but don’t make the competition in favour of private sector by selling PSBs to them. (IPA Service)