How to trust the Finance Minister? When his record for the farm sector is near zero!

Is India’s banking sector healthy? It depends who asks this question and also who answers the question. After the bank nationlisation it is the government that controls the banks (PSBs) and the RBI supervises them. The present government in Delhi hasn’t done any major reforms in the banking sector and in spite of the Finance Minister’s brave talks, bankers remain under strict government control, even routine matters no bank chairman will talk independently and so Basel 11 guidelines etc. cant make our banks to become internationally competitive. Not very soon. Only 7 PSBs are in a healthy position, as the FM himself hints. Others make for government funds to remain viable. Considering the banking sector’s inherent risks, bank employees work culture, our banks will remain government creatures.

Most PSBs spend lots of taxpaters funds (you should remember that around Rs.30,000 crore of taxpayers’ monies are spent on reviving these government owned banks) on lavish advertisements, more to hide their failures rather than their achievements. Full-page or even more one full-page ads are put by these banks. First the FM must ban the public waste of public money!

Now, the government, under Manmohan Singh, hasn’t done precise little to reform the banking sector. When Singh was Finance Minister he appointed the Narasimhan Committee on banking reforms. Vajpayee government at least tried to implement the reforms. But now with Singh back as the PM, his government is not willing to do sensible banking reforms. What are the ground level realities. The debt of farming families is astronomical. Mr.P.Sainath of The Hindu writes every now and then and we needn’t do the job again here we take it read by both the PM and the FM, if not by others too like RBI and Nabard among others!

Poverty forces 48 per cent of the people in 13 states to skip meals! 80 per cent do not have work all the year round, in AP, the scenario is depressing. So, what we have? What we are left with?

The same persisting misery of the people at the grassroots. Bankers tell privately that the banking system, with the present government controlled operations will become weaker and weaker and all good and big corporate accounts would migrate to good, efficient big private banks like ICICI.

There is a large parasitic labour force, no banking technology worth in most banks. Some say that a few private and public sector banks will drop out by 2008 if the government and the RBI do not act now”. Luckily, the World Bank has suggested to the Indian government to “revisit” its policy to cap the interest policies for the deposit rate and also the government should ”re-look” at its priority sector ending.

The World Bank in a study, ”Scaling up finance for India’s rural poor” notes how poor borrowers were cut off from access to credit because of the ‘caps’ and ‘floors’ on rural lending and thus the poor end up with the private money lenders paying higher interest rates. Interest rates should be deregulated, says the Bank economist Ms Priya Basu. Any such word is red horror to the Leftists! She cited the success stories of Indonesia and Philippines that have no interest rate controls and yet have succeeded in making deep inroads in rural areas. The states in a way harms the banking system by periodic waivers and subsidies and creating a climate of uncertainty among farmers as to not be strictly business-like in bank borrowing and bank loan repayments. The World Bank study at least gives us lots of insights as to limitless routes for banks to innovate and yet become successful in servicing the rural borrowers.

The prescribed quotas are not being observed. The PSBs resort to the device of subscription to the Nabard/SIDBI bonds. The Nabard knows these tricks, the FM knows these acts and yet he goes on and on talking sweet and looking bright! His latest announcement of a package of Rs.15,000 crores to revamp the co-operative credit system, much against the very spirit of the Vaidyanathan committee’s bold recommendations.

– V.Isvarmurti

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