By Charan Singh
Union Budget 2019 India: It is after a long time that India has a Union Finance Minister who is a trained economist and has been in public service. Ms. Nirmala Sitharaman, has worked hard to reach the top job in finance in India. In her arduous journey she has gained experience in diverse fields which is expected to reflect in her maiden Union Budget of July 2019. Union Budget is an annual statement of the Government, not just of accounts but more on the economic policy that shall be pursued in India, at least for the next year.
And given the fact that there is continuity of the same Government, the policy shift is not expected but the Budget of July 2019 may set the foundation for fiscal policy for the next five years. As the Government has come back with a thumping majority and wider-spread support, expectations are genuinely high.
The economy, in India, is significantly dependent on bank finance as would be expected in any emerging country. Therefore, financial sector reforms, especially banking, initiated earlier in the previous five years need to be taken forward.
Interestingly, 2019 is also the Golden Jubilee Year of Bank nationalization and setting up of National Institute of Bank Management, now located at Pune. The major scheme of bank nationalization was initiated on July 19, 1969, though earlier, in 1955 State Bank of India (SBI) had been nationalized. The argument of nationalization was to fulfil social obligations of the Government in providing banking services to people, especially in rural areas. The initial success of the scheme reflected in formulating and executing priority sector lending, around 1971-1974, encouraged another round of nationalization in 1980.
The nationalized or public sector banks (PSBs), accounting for nearly 70 percent of total banking in the country have been doing great service to the nation. The spread of banking network in rural areas, and disbursement of rural credit has been mainly because of PSBs. Similarly, priority sector lending, both in rural and urban areas, has mainly been because of PSBs. PSBs have ‘singularly’ financed industry, services and large infrastructure in India. PSBs, especially SBI, has played an important role in contextualizing electronic banking in India, through hand-hold devices, and internet banking. In the innovative schemes of the Government, like PM’s Jan Dhan Yojana or Mudra, once again, contribution of PSBs has been significant. In the fight against corruption, PSBs have again contributed by actively participating in demonetization.
The role and contribution of PSBs in last 50 years has been exemplary and needs to be celebrated in this Golden Jubilee year. These Banks were nationalized by an Act of Parliament and are now being consolidated, not privatized. This process of consolidation reflects that PSBs are here to stay and expected to play a much bigger role as well as compete with the best in the industry. It would be useful to have an evaluative study conducted on the role of PSBs in development of India. This research based study should distill lessons from last five decades of experience and provide guidance for better performance in future.
The issue of recapitalization of PSBs has been a disgraceful and demeaning fact for public sector bankers. In moving forward, the trained economist in the Finance Minister can consider initiating an exercise to compensate for the cost that is incurred in successfully completing social obligations that are fulfilled through PSBs. The cost can be computed on a pilot exercise or notionally conceptualized. Illustratively, to open a Jan Dhan account, the cost incurred ranged between Rs.500 and Rs.2000, depending on the remoteness of location, and literacy level of the account holder. And nearly 33 crore of such accounts were opened by PSBs.
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And the same exercise can be carried out for priority sector lending. Similarly, about 6 months of bank staff working hours can be considered consumed for demonetization. Once PSBs are compensated for such obligations, the burden on the Government to justify in Parliament, the use of innocent taxpayers money in recapitalization through Union Budget may not arise. And public sector bankers will regain their self-esteem that they are not perceived to be seeking alms from their owner, the Government.
The PSBs have been working as the financial army of the Government. As the Indian army unifies the country and protects the borders, so does the army of professional public sector bankers. These bankers, hailing from different parts of India are serving across the country, irrespective of region, caste, language or religion in pursuit of only one motto – to serve the nation, irrespective of compensation or competition from private or foreign banks. The officials of PSBs are serving in most remote areas of the country, like the army officers, many times without families, and are respected, by the local population.
To recognize their hard work, and their need, the Government could consider establishing National Banking Academy (NBA), on the lines of National Defence Academy (NDA), Pune. The entry to the NBA should be open to students with a 12th class certification of senior secondary school, as is done in NDA. The entry of graduates and some experts can always be done through different schemes as is done in the army.
The training schedule in NBA would emphasize on ethics, honesty and integrity (EHI); values which are most important while dealing with public deposits. The selection process of NBA should screen banking cadets who assign strong value to tradition, as banking has a lot to do with people, language and culture. Similarly, for dealing with people’s money, the banker has to be conservative and not a risk taker. In view of these principles, many banks in India survived for more than a century.
Illustratively, in earlier years, in Punjab and Sind Bank, with a history of nearly 112 years, this dip-test of respect for traditional values and conservative approach was an integral part of the interview process. In contrast, in modern times, in the absence of psychometric tests for EHI values, Basel norms have devised concept of risk appetite and risk weight capital, and despite such lofty quantitative indicators, western banks have demonstrated in 2008 with the collapse of Lehman, hollowness of such superficial exercises wrapped in complicated mathematical formulas – meaningless sophistication.
Finally, it would be encouraging for PSBs and inspiring for their employees if the owner, the Government, can institute some annual awards to recognize their services. After all, for a banker, every loan is risky and uncertain as to when it will turn into a non-performing asset, jeopardizing his career and old age pension. Interestingly, for the banker, enemy is not across the border but hidden somewhere in the account books. The banker faces a guerilla war and not conventional enemy. Rarely a banker goes unscathed. Hence the need to recognize and celebrate banking awards, annually.
The author is CEO of Noida based economic think tank EGROW Foundation. The views expressed are the author’s own.