DNA Exclusive: Bank strike, privatisation and key issues


New Delhi: Bank employees observed a two-day nationwide strike that ended on Tuesday (March 16). The primary reason behind the strike was the government’s bid to privatise state-run banks.

The strike was called by the United Forum of Bank Unions (UFBU), consisting of nine bank unions—AIBEA, AIBOC, NCBE, AIBOA, BEFI, INBEF, INBOC, NOBW and NOBO.

Zee News Editor-in-Chief Sudhir Chaudhary on Tuesday analysed the reason behind the bank employees’ opposition to privatisation and also explained why the government intends to push it.

About 10 lakh bank employees across the country went on strike and a large number of them wrote to Zee News to be their voice. It is the duty of the media to give these voices a platform.

The main reason for the strike is the privatization of public sector banks. The bank unions are against it. They say that handing over public sector banks to private hands would be a big mistake and would affect the interests of bank customers and employees as well. 

In simple words, the purpose of this strike is that the government should not reduce its control and powers over the public sector banks and the status of these banks not be changed from government to private.

Bank employees argue that privatisation will harm the country as private banks will never understand their social role. They fear that due to privatization, loans for farmers, poor labourers and education, which are easily available from government banks, will not remain so.

The biggest reason for their opposition is that they fear that the change would affect their interests and facilities extended to them presently.

There is one more reason for this fear and the answer lies in the union budget presented on February 1. In the budget, the government announced that it is planning to disinvest two public sector banks. The government, however, did not name the two banks, which has now become a cause for concern for the employees.

There are currently 12 PSU banks in the country. They are commonly known as government banks as the government has more than 50 per cent stake in these banks. Now that the government has decided that it will disinvest two of these 12 banks, that is, it will reduce its stake in these banks, the bank employees argue that this step of the government will make them private banks.

The bank has nothing of its own, so in a way, it acts as a trusty. The question is: Should it be under government control or is the privatisation of banks a right decision?

There are many small state-run banks in India and the government wants to limit this number by merging them. It is being said that the government wants that instead of having 12 banks, there should be three to four big government banks in the country, which can fund big projects and issue loans for them.

At present, according to the guidelines of the central bank RBI, these banks cannot issue loans beyond the prescribed limit and due to this, the government is unable to get loans from these banks for many big projects. 

In such a situation, the government is working on the merger of banks and a plan to reduce their stake in them. 

This line of reasoning can be better understood by the example of the United States.

In the US, the government has very limited control over the banking system. The big private banks dominate the market there. They have the capacity to fund big projects not just in their country but outside as well.

That is to say, the private banks there are very crucial for America’s economy. The total assets of JP Morgan Chase Bank of America are worth 3.03 trillion US Dollar, which is much more than the total GDP of India.

The example of China can also be taken in this regard. There the communist government has full control over the banks. But China does not have too many banks like India. There are five big state-run banks and the capacity of these banks is so much that it is not at all difficult for China to raise funds for big projects. 

The debate of nationalization and privatization of banks is not new. The Imperial Bank was first nationalized in the year 1955. It is known as the State Bank of India today.

The biggest change occurred in the country’s banking system under the leadership of former Prime Minister Indira Gandhi’s government. In 1969, Indira Gandhi nationalized 14 big private banks in the country. At that time these private banks had a deposit equivalent to 85 per cent of the total deposit in all banks.

There were three major reasons behind this decision taken by Gandhi. The first was political, the second was economic and the third was to bring a change in the banking structure.

The decision was political as Gandhi wanted to strengthen her position in the Congress party and give a strong response to her critics. The decision indeed changed the attitude of the leaders within the Congress.

The second reason was economic. In the years 1965 and 1966, India had registered negative GDP growth rates. In April 1969, the rate of inflation reached around 10 per cent. In such a situation, the nationalisation of banks was the first step towards Gandhi’s “Garibi hatao” mission. She reaped the benefit of it in the 1971 Lok Sabha.

The third reason was to bring a change in the banking structure. Back then the private banks used to be arbitrary and a large part of the loan was available only to certain industrialists. Not only this, these banks did not have branches in rural areas due to which people living in the village for many decades could not become a part of the banking system of the country. In the year 1980, as many as six private banks were nationalised.

In the last 10 years, private banks have taken a large share of business away from the government banks. In March 2010, 75 per cent of the total loan was issued from public sector banks. This figure declined to 57 per cent by September 2020. That is, in the last few years, the government banks have suffered and the private banks have become stronger.

Moreover, the deposits of common people in private banks have increased from 17 per cent to 29 per cent in the last 8 years. That is, people are getting attracted to private banks.

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