Can the ‘Gem of a scam” become “Gem of an opportunity’??

The debate on privatisation of Public Sector Undertaking (PSU) banks has a habit of rearing its head in public discourse in India with regular frequency. Not so long ago, it was when the PSU banks were hit by the NPA (Non-Performing Assets) crisis embodied by the likes of a fleeing Vijay Mallya. Later, it was when the Government finally took a call on recapitalisation of the PSU banks last year. And now, it is when the Nirav Modi – PNB scam, the latest to hit the Indian shores (and shares) surfaced. Yesterday even Arvind Subramanian, the usually reticent Chief Economic Advisor has joined the debate!

Reformists are of the view that the Government is betraying Winston Churchill again and again who famously said that “Never let a good crisis go waste” in the context of biting the PSU bank bullet. They are of the view that the repeated crises which hit the PSU banks provided a plausible excuse and “Gem of an opportunity” (pun entirely intended) for the Government of the day to privatize PSU Banks and thereby get out of the rigmarole of using tax payer’s money to keep bailing them out. The underlying assumptions being that the PSU Banks are run usually inefficiently and being under sarkaari control are subject to pulls and pressures.  While this is true for almost all PSUs in general, money being closer to the pocket and heart of the public, privatisation topic haunts the banks more. One cannot dismiss the very popular data point thrown in the above argument’s favour which is that the market cap of a relatively younger HDFC Bank which is privately held is higher than all PSU banks put together!

At the core of the argument against privatisation is of course the security it provides to the Aam Admi. Irrespective of what happens around the balance sheets of these PSU banks. The general public does believe that the Government will not let their savings go down the drain come what may. One remembers the furore and angst in WhatsApp groups recently when we were all told that our deposits above 1 lac are not safe if the banks go belly up. So, for any Government of the day, it is a minefield of a quandary to attempt privatisation of PSU banks unless it is completely politically immune to a public outrage and the after effects thereafter!

Be that as it may – the Government’s quandary I mean, the larger issue is the conflict bordering on hypocrisy in the minds of people like us which is – my direct stake in the bank by way of savings/deposits Vs my indirect stake in PSU banks by way of government’s stake which is in effect all our tax payer’s money. In short “My money” Vs “Our Money”! Nirav Modi has just swindled a government bank of few 1000 crores but that still is not “My money” though it is “Our Money!  And largely our outrage has stopped with laughing out loud (or is it laughing like Renuka these days?) looking at jokes, memes and sarcastic jibes on the Government while a smart cookie has “been crying all his way to the bank”! I think as individuals we are more concerned about the safety and security of our savings which we feel is protected if PSU banks remain as is – Government owned.  Even if that means

  • The Government of the day interfering in the day-to-day functioning
  • The Government mandating the banks to carry out populist programmes which may not make commercial sense but may make immense political sense to them
  • Mounting NPA’s due to favouring cronies of the likes of Vijay Mallya
  • The Nirav Modi kind of frauds due to conniving staff
  • Less accountability in the system.

At the end of the day, as along as the banks are Government owned, the only fix for all the above ailments is injecting more capital which is by tapping into tax payer’s money. It’s obvious that the same money if not used for bailing out banks could be put to use for better roads, power, water, electricity or even for that matter the proposed grandiose Health Insurance programme – stuff our country has been deprived of in the last 70 years since Independence.

The 1.6 billion dollar question is whether as tax payers and citizens we are okay and ready to let the government seize the opportunity and privatise the PSU banks? My guess is maybe we are not. And this stems from our socialistic belief that next to God, the Government is the savior and hence must protect us. And the constant fear associated with losing our money if not protected by the government.

In a country like ours which is evolving and is still a work in progress on many fronts like urbanization, education, social mobility,..,… the fear is mostly legitimate. Coupled with the fact that the private sector has not fully covered itself with glory. But the performance of the new private banks set up since the opening up of the economy in 1993, provide quite a lot of hope. For example, as far as we know, the new private banks are not part of the NPA problem.  Even during the 2008 Lehman shock, when all over the world financial institutions were rocked and many went belly up, in India none of the banks including the private ones were affected so much (though banks like ICICI had exposures to the subprime crisis) due to very strong regulations in India.  So, so far we could bank on these banks!

In summary, my point is may be if not all in one go, the Government could contemplate privatising PSU banks in batches of say 2 starting with the smaller ones. This will give adequate space to watch out for any pitfalls in the process and fine tune the same. This of course with the continued strong regulatory frame work in place.  The smooth completion of the ongoing privatisation of Air India may give the much needed heft to the Government.

With may be all banks out of governmental control in the next 10 years, the frequent exercise of tapping into “Our Money” to protect “My money” may be a conundrum of the past. The moot question remains if this current “Gem of a scam” will be turned into a “Gem of an opportunity” by the Government and that we as public will let that pass!

Postscript: Overheard in a lift: “These jewelers kept telling us that Diamonds are forever. But, they never told us that loans are also forever! Saala vaapas hi nahi kiya!!!

Toon courtesy: Satish Acharya

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