50 years of bank nationalisation: Good so far, but these problems remain

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The financial expertise which began the midnight of July 19, 1969 was followed up with nationalisation of six more banks in 1980.

On this day, 50 years back, fourteen major lenders that accounted for 85 per cent of bank deposits were nationalised under the then Prime Minister Indira Gandhi-led government. The financial expertise which began the midnight of July 19, 1969 was followed up with nationalisation of six more banks in 1980. The government of the time driving the nationalisation of banks with a core objective of boosting priority sectors at a time when the large businesses dominated credit profiles. The government also believed that the lenders were not being able to support its socio-economic objectives and hence, should expand its control over them.

With the last 50 years already having been passed, the PSU banks are tackling several issues including surging bad loans and political interference. The key problems with the PSU banks are governance, political interference and to an extent expertise which may not have kept pace in the area of credit evaluation, Madan Sabnavis, Chief Economist, CARE Ratings told Financial Express Online. The problems need to be addressed soon, he added.

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“Conceptually PSBs is a good idea if we have push financial inclusion such as say the JAM trinity. However using them for political agendas can be challenging especially if they have to chase targets in certain sectors as compromises are made along the way. If we have independent boards and are able to restructure the pay to get the right talent and keep political agenda away, the PSBs can function like any other private bank,” he also said.

The PSU banks are currently grappling with losses that have increased significantly over the years. Veteran market analyst Nilesh Shah tweeted earlier in the day, highlighting the rise in bank NPAs in the last fifty years.  “The combined profits of 14 Banks nationalized on July 19, 1969 was Rs 5.7 Cr. Today their combined losses are Rs 49,700 Cr”, Nilesh Shah, MD, Kotak Mahindra Mutual Fund, tweeted.

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