No statement made by any NDA minister made so far is as significant as the one made by Finance Minister Arun Jaitley on Saturday (27 May), where he called for the divestment of Air India. “If 86 per cent of the flying can be handled by the private sector, they can handle 100 per cent also,” he said.
But his views on public sector banks were underwhelming. While pointing out that we don’t need 30-32 public sector banks of various kinds, his solution seems to be the merger of weak banks. He said, “we want fewer banks, but bigger and stronger banks…”. This is a vain hope. Bigger does not always mean stronger, as the sharp drop in State Bank of India’s consolidated profits post the merger with its five subsidiaries and the Bharatiya Mahila Bank shows. Merging the other losers in the banking sector is hardly going to build a stronger bank.
The point is simple: why should not the Air India logic work for public sector banks too? If 30 per cent of banking can be handled by private sector banks, why not 70 per cent – the current share of public sector banks? Why not reduce the public sector banking footprint to a level at which it will not sink the government’s fiscal boat whenever the business cycle goes for a toss?
One political answer could be that financial inclusion and social needs are better met by public sector banks, since the private sector is unenthusiastic about creating customers who only entail costs. Out of the 286 million Jan Dhan accounts now in operation, barely 10 million was contributed by private sector banks.
29/05/17 R Jagannathan/Swarajya
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But his views on public sector banks were underwhelming. While pointing out that we don’t need 30-32 public sector banks of various kinds, his solution seems to be the merger of weak banks. He said, “we want fewer banks, but bigger and stronger banks…”. This is a vain hope. Bigger does not always mean stronger, as the sharp drop in State Bank of India’s consolidated profits post the merger with its five subsidiaries and the Bharatiya Mahila Bank shows. Merging the other losers in the banking sector is hardly going to build a stronger bank.
The point is simple: why should not the Air India logic work for public sector banks too? If 30 per cent of banking can be handled by private sector banks, why not 70 per cent – the current share of public sector banks? Why not reduce the public sector banking footprint to a level at which it will not sink the government’s fiscal boat whenever the business cycle goes for a toss?
One political answer could be that financial inclusion and social needs are better met by public sector banks, since the private sector is unenthusiastic about creating customers who only entail costs. Out of the 286 million Jan Dhan accounts now in operation, barely 10 million was contributed by private sector banks.
29/05/17 R Jagannathan/Swarajya
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