Bank Nationalization in Retrospect

Banks were nationalized by Mrs Indira Gandhi with much fanfare.  It was done with a view to replace the class banking practiced by the then private banks with mass banking.  Currently the term mass banking has been replaced by a more sophisticated one, that is, financial inclusion.  This was a laudable objective indeed and still remains laudable and only marginally fulfilled.  Else, why would there be such hue and cry about financial inclusion after more than 4 decades of bank nationalization?

Looking back, it seems very clear that this was a master stroke by the shrewd political class for helping crony capitalists drain the public exchequer.  All talk about mass banking was merely a facade.  The unfulfilled mass banking agenda is being now carried forward for setting up smaller banks with limited functionality like payment banks etc.

In a recent TV debate on the Mallya debacle, one of the speakers pointed out that it is generally believed that the global banking crisis a few years ago left India untouched.  While governments world over had to pump in huge amounts of money to rescue some of the banks, nothing of the sort had to be done in India.  He went on to say that this is fallacious.  According to him Indian public sector banks face this crisis every year because of large loans being written off and large sacrifices being made for corporate debt restructuring etc.  And they are rescued each year by the government by recapitalizing the banks.  Thus nationalization did not help the agriculturists or the poor common man so much as it helped corporates having good liaison with the politicians to milk the public exchequer.  To be fair it must be said that the banks merely served as a convenient conduit.  But has the conduit too been damaged in the process?  We may have to wait for some more time to find out.

This must be the reason why politicians of all hues, and not merely the leftists who control the trade unions in these banks, have no real interest in privatizing the banks.  Though, it must be said to their credit that they do occasionally make the right kind of noises in this matter.

The massive fraud, which perhaps overshadows all other mega scams thus far, has now been uncovered and the astronomical amounts involved are staring us in the face.  I do not know if the sums involved are giving the government a cold feet too.  Do they still have the capability to recapitalize the banks to the extent required?  Or is the ground being prepared for the depositors to take a haircut?

As a retired person living on his precious savings and interest thereon, the very thought gives me the shivers.