alised banks needed to be cajoled and incentivised
to move into difficult geographies and sectors. The
banks had to be driven to unfamiliar rural and
other sectors with a definite policy of priority
lending. For the first time, the banks were asked
to lead economic development with the district as
the focus. Each bank adopted a district and pre-
pared detailed surveys of their economic poten-
tials and steps needed to tap it.
But the prevailing popular wisdom seems to
regard Indira’s initiative as a retrograde measure
that set back economic growth to benefit her per-
sonal political ambition.
While there is a wealth of research damning the
effects of bank nationalisation, partly biased,
undertaken when rainbow economic conditions
prevailed, contrary non-partisan research is
sparse. The all-pervading economic gloom of the
present perhaps is an opportunity for a proper
appraisal of the politics of the ideological debate
over bank nationalisation and the road ahead.
What should be the actual focus of this debate at a
time when public trust in the banking system is at
an ebb?
This needs to be separated from the other debate
over the merits or otherwise of the government
dominating the “commanding heights of the eco -
nomy”. Or for that matter, on the issues of moral
hazards of loan waivers, mounting bank NPAs
and their writedowns and crony capitalism assist-
ed by pliable government banks. There is a sec-
tion of opinion that has been attacking the gov-
ernment ownership of banks on the ground that
banks lend under political pressure and acquire
toxic debts. Such critics should remember that in
the western countries, including the US, private-
ly-owned banks brought down the global finan-
cial system itself by their unregulated greed and
mismanagement. Sadly, even when high-level
probes in those countries named individuals for
wrongdoing, the relevant government depart-
ments did not pursue prosecution of such individ-
uals. While billions of dollars of public money
were lost due to misconduct on the part of bank
management, they were let off with fines of a few
million dollars.
Then how do you ensure proper accountability
and systemic checks and balances?
It is not ownership that matters for the growth
and development of healthy financial institutions,
of which banks are a vital part. What is required is
independent, specialised and prudent regulatory
vigilance of the financial system that is not influ-
enced by political exigencies. In the normal
course, the golden anniversary of bank nationali-
sation should have been a fitting occasion for
recording their saga—their immense contribution
to the building of modern India during the past
five decades. This would be very interesting eco-
nomic history. Unfortunately, their NPA story,
authored by Indian politics, is eclipsing their posi-
tive legacy.Twitter: @indialegalmedia
Website: http://www.indialegallive.com
Contact: [email protected]| INDIA LEGAL |July 22, 2019 5INTERNAL
CRISIS
(Above) The then
FM Morarji Desai
(left) had stalled
PM Indira Gandhi’s
suggestion for
bank nationalisa-
tion, which led to
his ouster from her
cabinet; (left) a TOI
clipping of July 20,
1969, announcing
the nationalisation
of banks