Privatization of Public Banks Would Not Add Value to Indian Banking: Bank Employee Association

A bank employees' body has written to Union Finance Minister Arun Jaitley arguing that a move to privatise the public sector would be counterproductive.

The Indian National Bank Employees Federation (INBEF), the banking wing of Congress- affiliated Indian National Trade Union Congress (INTUC), has said in the letter that privatising public sector banks (PSBs) would result in destroying their huge branch network across the country.

Recently, some industry bodies urged the Government to privatise the PSU banks in the background of the Rs 12,600 crore PNB fraud.

"Should the PSBs be handed over to private corporates, it will not only be counterproductive, but also lead to self-destruction of a well-knit huge branch network across the length and breadth of the country that services crores of people," the INBEF said in the letter.

INBEF pointed to some gaps in the regulatory mechanism in regard to fraud played on the Indian banking system.

"Besides supervision, the Department of Banking Operations in the Reserve Bank of India (RBI) responsible for controlling the unwarranted risk in high-ticket advances is without a head ever since the then Deputy Governor S.S. Mundra retired in July 2017," the union said.

"While there is a need to look into the performance of the Bank Boards Bureau, the transparency about the RBI policies during the tenure of then Governor Raghuram Rajan is being widely and openly compared with that of yes-men working presently," it added.

Last week, the Finance Minister had criticised regulators, as well as bank managements and auditors, for their failure to detect bank frauds and said that "politicians are accountable but regulators are not".

"What are our auditors doing? Both internal and external auditors really have looked the other way or failed to detect," Jaitley said at an event here, without naming the Punjab National Bank scam.

Besides PNB, several other government-owned banks, including Bank of Baroda, Oriental Bank of Commerce and Corporation Bank, have reported fraud.

According to the bank union representatives, the current argument that over 20 PSBs is a large number runs contrary to the existence of 21 private sector banks, many of which are still on the fringes of the Indian finance even after remaining in operation for a considerable number of years.

In support of the argument against privatisation, analysts point to the worldwide experience of PSBs repeatedly becoming effective instruments to battle financial crises.

The most recent instance of this role played by state-run banks comes from the 2008 financial crisis in the US, which set off a global depression, when major private commercial and investment banks in developed markets on the verge of going bust had to be saved with public money.

The list of private banks that either failed, were distressed, or were merged since 2009, runs into many pages on the website of the US Federal Deposit and Insurance Corporation.