GS Paper 3
Syllabus: Banking
Source: Indian Express
Direction: This is an editorial explained article. We had already discussed this issue in detail in last month’s article. This article will add only unique points left out. Just note a few important points on nationalization (not every point should be noted down)
Context: In the Union Budget 2021-22, the government announced its decision to privatise two public sector banks.
A recent paper by Poonam Gupta of NCAER and Arvind Panagariya argues that “the government should move as rapidly as politically feasible”. Meaning privatizing all except the State Bank of India.
Why Privatize? (As per the study)
- Private sector banks are far more efficient, far more productive and far less corrupt than the PSBs.
- Private banks had a greater contribution towards extending loans. They also had a higher percentage of contribution to getting deposits from savers.
- Private banks added more branches and created new jobs while the public sector banks saw declines on both counts.
- More often than not public sector banks have been disproportionately guilty of fraud.
Why not Privatize?
- In a paper titled “Privatization of Public Sector Banks: An Alternate Perspective” by RBI “a big bang approach of privatization of these (public sector or government-owned) banks may do more harm than good”.
- Rural reach: While the private banks dominate the metropolitan areas, it is the public sector banks that operate branches in rural India.
- PSBs provide more ATMs in rural India.
- Social relevance: E.g., Private sector banks accounted for just 1.3 crores of the total of almost 46 crore beneficiaries of PM Jan Dhan Yojana.
- PSB is better in financial inclusion: On profit maximization, Private banks are more efficient but when the objective is financial inclusion—PSBs are better.
- Infrastructure finance: PSBs have a lion’s share in these lendings.
- PSBs are also more effective in monetary policy transmission, aiding the countercyclical monetary policy actions to gain traction.
Conclusion:
Private ownership alone does not automatically generate economic gains in developing economies’ and a more cautious and nuanced evaluation of privatization is required.
Insta Links
Practice Questions
Q. What were the factors that led to the nationalisation of banks? Examine its impact on economic development and job creation. (15M)
Consider the following statements: (UPSC 2019)
- Coal sector was nationalized by the Government of India under Indira Gandhi.
- Now, coal blocks are allocated on a lottery basis
- Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 3 only
(d) 1, 2 and 3
Answer: A
Both statement 2 and 3 are incorrect. Coal is allotted in auction and India still imports coals (especially coking coal)
The basic aim of Lead Bank Scheme is that ( UPSC 2012)
(a) big banks should try to open offices in each district
(b) there should be stiff competition among the various nationalized banks
(c) individual banks should adopt particular districts for intensive development
(d) all the banks should make intensive efforts to mobilize deposits
Answer: C
The Lead Bank Scheme, introduced in the year 1969, envisages the assignment of lead roles to individual banks for the districts allotted to them.
