In these troubled times, it's axiomatic to say that 'government' is the Leviathan crouching around the neck of the governed. The larger the government becomes, the poorer the governed turn. Public sector banks were seen as the lifeline of a nation in the throes of reconstruction after Independence, but they've now become the channel through which public money flows out. Maybe it's around time public sector banks are be privatised. At least, deny the corrupt a safe perch!
Banks were nationalised in 1969, a political masterstroke that helped Indira Gandhi vanquish the Syndicate challenge and oust Morarji Desai as finance minister. However, beyond political goals, bank nationalisation had its stated economic goals -- to stem the rising tide of bank failures, refocus bank lending on agriculture and offer credit support to a whole lot of priority sectors.
Nationalising the banks was seen as the right means for national reconstruction -- the process of giving the country back to the people. However, nearly 50 years later, the reality is that the nationalised banks have failed in this mission. And the graver realty is that they've sold out to those who loot the country. They've become the travesty of the original goals for which they were set up.
The NPAs the public sector banks have racked up are a miserable reflection of the pernicious co-existence of the absence of accountability and rampant corruption
The latest Economic Survey showed that as much as 82.6 percent of Indian banks' loan book was accounted for by the large enterprises. Micro, Small and Medium Enterprises (MSMEs) received only 17.4 percent of the total credit. MSME is the sector that contributes 45 percent of the total manufacturing output and as much as 40 percent of the country's exports.
It just turns out that public sector banks have not just failed the poor of the country, the backbone of the economy. They've failed the nation by setting their regulations -- and scruples -- very low that mindboggling corporate piggeries are allowed to happen. The Punjab National Bank scam is just the latest of the examples. One may argue that such daylight robberies do not happen often. But the fact is that such loot of public wealth happens all too often, and they only take a little longer to emerge in the form of non-performing assets (NPAs).
The NPAs the public sector banks have racked up are a miserable reflection of the pernicious co-existence of the absence of accountability and rampant corruption. Loans do not merely become bad loans; bad loans are created in the first place. Whose loss is it anyway? The government will recapitalise the banks with money from the public exchequer and then again, extricate more from the public in the form of taxes.
Priority sector lending
Yet, ironically, farm and MSME loans much often figure in the discourses about bad loans and the deteriorating asset quality in the banks. But what's the truth? Are the public sector banks burdened so heavily with those little loans the farmers and the small time cottage industries avail of? According to the Economic Survey, only 11.8 percent of the NPAs is from the priority sector. Bank nationalisation's stated aim was to offer more credit to the priority sector, which includes agriculture, MSMEs, housing for the underprivileged and education loans.
At 11.8 percent, the NPA from this sector amounts to a meagre Rs 75,000 crore, compared with the 8.5 lakh crore in NPAs the public sector banks have accumulated. So, for whose sake have they been labouring? And it's not even the case that public sector banks alone bear the NPAs from the priority sector. The Survey shows that priority sector NPAs in private banks was 9.6 percent.
Under the Priority Sector Lending (PSL) guidelines, at least 18 percent of the adjusted net bank credit (ANBC) should go to the agriculture sector. Another 8 percent should be earmarked for small and marginal farmers. However, large public sector banks barely keep pace with this norm, let alone surpass it. According to an RBI report, in 2017, priority sector lending was flat in public sector banks while this showed better levels of growth in the private sector.
Less loans to agri sector
Another report showed that the growth of lending to the agriculture sector in the country fell to 5.8 percent as of September 2017, compared with 15.9 percent in the corresponding period in the previous year.
A report from Madhya Pradesh shows that the number of farmers getting the farm loan waiver is just around 11 percent of the total targeted beneficiaries
RBI data further showed that loans to agriculture sector in Karnataka fell from 17 percent to 6 percent while in Telangana, the fall was from around 20 percent to 3 percent. The situation is not different in other states in the country.
And often there is a lot of noise about the pain of writing off farm loans. But what's the reality? A report from Madhya Pradesh showed that the number of farmers getting the farm loan waiver is just around 11 percent of the total targeted beneficiaries.
And, you are talking about individuals whose loan amounts are in the range of Rs 1 lakh, not the Rs 11,400 scraped off the corrupt system by Nirav Modi.