From what one can gather from the developments so far, including the clarification by the governor, the working group’s suggestion may be some sort of kite-flying. But it is dangerous kite-flying. Someone somewhere is trying to push somebody’s agenda. That much is clear. The governor’s assurances are just not enough.

For, there has been a tearing hurry in the panel’s work, from its constitution to the finalisation of recommendations. The working group has taken only four months to deliberate on such fundamental issues that can have far-reaching implications for the role of banking sector and the concept of banking as the Indian public have understood. Generally, such ideas stay in the air for a couple of years before finding their way into formal reports. In the present instance, only a couple of months were provided for public response.

Also the newly-postulated line is not in conformity with what we have been used to hearing all this while. In India, banking has a strong social component and has never been considered purely from the commercial angle, although commercial viability and sustainability are important issues. Bank nationalisation is considered a milestone in the history of independent India and played a key role in setting the agenda and establishing a development model for the young republic.

While it is true that changing the course of history with retrospective effect is a fast-catching trend under the saffron establishment. History can be erased but not ‘uncreated’, which seems to be idea behind many initiatives of the Modi government, manifesting in saffronisation of names of places and institutions, apart from effacing traces of a less than palatable past.

Reversal of bank nationalisation would eminently fit in with the scheme of things that is being pushed to deny credit for anything good that happened in the Nehru-Gandhi era, using the period only for apportioning blame for everything that has gone wrong in our system of governance. Public sector banks certainly have their fault lines and are far from being ideal growth engines for the nation and its economy. But this does not negate the revolutionary spirit of bank nationalisation, which was also meant to address some of the most fundamental issues of the banking system prevailing at that time.

Prior to bank nationalisation in 1969, the banking sector was in private hands and major banks such as Central Bank of India and the United Commercial Bank were owned by the Tatas and Birlas respectively. It was a rampant practice for the private banks to lend to group concerns, which meant that low-cost depositors’ money was being routed to preferred companies without worrying about the viability of such lendings. The result was that the money was not necessarily used for the purpose for which it had had been provided. More importantly, conflict of interest was never a bother in setting lending policies. This led to widespread fraud and defaults became the order of the day. This invariably led to banks folding up. According to one published account, 361 banks of various sizes failed in a short period in the first decade of independence.

Experience with the gradual entry of private banks in the post-nationalisation period has not been very sanguine either. Even with greater government control over the banking sector, regulatory success of the apex banking has been far from satisfactory, with a deadly concoction of risk-taking, frauds, and malpractices spoiling the show. Recent incidents involving Punjab National Bank, Yes Bank, PMC Bank, ICICI Bank, Infrastructure Leasing and Financial Services to Dewan Housing Finance Corporation Limited have dramatized the danger.

Private banks owned by corporate houses would in fact be the licence to regularise and legitimise circular banking, which is already flourishing in the country. (IPA Service)