| Published on 23-09-2006 In National |
| Viewed 1912 times |
| The genesis of Bank Nationalisation |
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Written by
N. Murugan IAS (Rtd) |
(This is the first in a series of articles that will examine the post-Independence banking structure in India)
India's brand of Socialism is a product of the views and beliefs of our first Prime Minister, Jawaharlal Nehru. To look into its genesis, one has to understand the context of the education which young Jawaharlal had in England, thanks to his affluent lawyer-father, Motilal Nehru.
Influence from the Left
Those were days when many educated youth were enamoured by the success of the socialist/communist movements first in the USSR and later in the Eastern Europe. Added to this are the views of personalities, like Bernard Shaw in England, who eulogised Socialism and propagated their variety of Socialism, the Fabian Socialism.
The Fabian Society wanted to have Democratic Socialism, not the Revolutionary Socialism of the Communists. During the late 50's and early 60’s the catch phrase, in Indian politics, particularly the Congress politics, was “Democratic Socialism”.
Role of politics
After the demise of Jawaharlal Nehru and passage of time Madame Indira Gandhi took over as the P.M. Her plans to control the Congress Party had resistance from senior party leaders and the fight raged on. As a strategic move Madam Gandhi had to don the mantle of a pro-poor socialist stance.
She had to abolish the Privy Purse of the erstwhile Princes of various Princely States and declare Social Control of banks which is another name for the Nationalisation of Banks.
This political strategy apart, there were many in the Congress party who sincerely believed that once nationalised these banks are going to be the fountainhead for the development of the Nation.
Loan Melas
There was an argument that banks have never been interested in advancing loans to small industries, farmers and first time entrepreneurs whereas freely sanctioning advances to big industries.
Thus, banks were not discharging their social responsibility functions.
Once banks were nationalised their administrative control vested with the Central government. Politicians started influencing the banks to advance loans to weaker sections.
Many “loan melas” were conducted with fanfare. But later the hard financial fact of huge bad loans that were not repaid brought sense to those concerned with bank administration.
Slowly banks stopped such loans and hard methods of proper loan appraisals and security-based loan sanctions were adopted over time.
Need for nationalised banks
The need for nationalised banks to a developing economy has been felt throughout the world.
Also the contribution of banks in achieving national financial objectives and advancing loans to the priority sectors were easily obtained through nationalisation.
Thus, targets were fixed for all nationalised banks to advance certain percentage of their funds to priority sectors like agriculture, tiny sector industries, educational loans etc.
Once the initial development is achieved in the economy, the active role of finance in further developments take a back seat. Also growth leads to fund availability and need for bank bunds reduced.
Now, many banks are flush with funds and competition among various banks makes things worse. If they were in the private sector many banks may have to take a reasonable decision to close down operations or diversify at best.
But this cannot happen in any Public Sector Units (PSUs) , including Public Sector Banks (PSBs) in a democracy like India for the simple reason of labour unions and the inevitable vote bank politics. They continue to exist forever.
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