Banking on fairy tales

   By Ravi Shanker Kapoor ,  30-Jan-2019
Banking on fairy tales

The government continues to ignore the only reform needed in banking—privatization.

 The government seems to be happy with the current performance of several public sector banks (PSBs). After a day-long meeting with PSB bankers on Monday, interim Finance Minister Piyush Goyal said that he was “confident” that PSBs would become “more vibrant and profitable in the days to come.” Sounds good but one has to be extremely optimistic to believe such pep talk.

At the end of the second quarter of 2018-19, all PSBs together recorded a total operating profit of Rs 36,757 crore, he said, adding that several PSBs are likely to report profits at the end of the current fiscal. This is in contrast with the losses all state-run banks, except Vijaya Bank, incurred in 2017-18.

Improvement in the financials of PSBs is “a result of government’s comprehensive 4R’s approach of recognition, resolution, recapitalization, and reforms, which has positioned PSBs to step up their support to meet the lending needs of a growing economy,” a Finance Ministry press release said.

Of the four 4R’s, the first three are easy: you recognize fast when you bleed; resolution, too, is easy, for mostly it is claptrap which politicians do all the time; and recapitalization is also easy because the government spends taxpayer money on public sector abominations with impunity. So, Goyal’s pep talk has its origins in the “recapitalization of PSBs by over Rs 2.6 lakh crore… since clean-up began in 2015.”

It is the fourth R, reforms, that requires courage; and it is here that nothing has been done. And, actually, the fourth R should not be in plural but singular—only one reform and that is privatization or denationalization of PSBs. For it was the nationalization of banks in 1969 by Indira Gandhi that was the original sin; it led to the accumulation of vast economic powers in the hands of politicians and bureaucrats who have used it with utmost brazenness over the years. While the sin was committed by the Congress, other parties have reveled in it. No government has made any attempt to denationalize banks.

Officialese usually revolves around clichés and platitudes. Therefore, the press release kept telling fairy tales: “Further, enabled by the recently approved MSME Restructuring Scheme and the 12-point agenda for supporting MSMEs announced by the Prime Minister at the launch of the MSME Outreach and Support Programme, PSBs committed to step up MSME lending. Banks committed to further improve on the robust growth in credit and reducing trend in turnaround time for loan applications through growing use of fintech and technology as evidenced by the success of the 59 minutes loan portal, through which over 1.25 lakh MSMEs have been accorded in-principle approval. Banks agreed to work further on increasing use of advanced data analysis and where possible, Artificial Intelligence algorithms for better, faster and hassle-free credit decisions and monitoring of accounts. Amidst a number of positives, Finance Minister highlighted the need for each and every PSB to ensure that recent gains are sustained and better service delivered to all stakeholders.”

So many words meaning nothing, signifying nothing. Nobody is bothered about the fourth R.