Mumbai : More than 60 economists and professors from renowned universities have come together to oppose the idea of privatisation of public bank and ask banks to publish their lists of wilful defaulters. Using the present crisis of Punjab National Bank (PNB) to privatise banks will make matter much worse, stated the economists.
One of the signatories, SP Shukla, Former Finance Secretary and Member, Planning Commission, told The Free Press Journal, “This statement is the analysis from our side for everyone to understand the reason privatisation is not an option.”
Expressing shock over the recent scam and the potential losses faced by the banks over non-performing loans, the economists wrote, “While it is true that the current scam involves Punjab National Bank, the second largest public sector bank, the basic cause is very clearly the inadequate and faulty regulation and monitoring of the banking sector. This affects all banks, regardless of ownership.”
The statement further stressed that the fraud which was led by private players pursuing profits at any cost is being made the reason for handing control of the nation’s savings to the private sector. “Poorly regulated private banks are even more prone to scams and failures, as the financial sector is rife with information asymmetries and market imperfections.”
Citing the US and European bank behaviour which lead to the Great Financial Crisis of 2008-09, the economists pointed out the private profit orientation generates incentives for managements to exploit loopholes in rules and engage in risky behaviour.
Shukla said, “The banks were nationalised with an intention to prevent bank failures.” It is estimated that on an average 35 private bank failures occurred every year, before the nationalisation of banks in 1969.
The statement also tried to highlight the issue of providing unsecured loans and ever-greening of loans is not limited to PNB or public sector banks, but is present among some private banks as well. “In fact, because of the opacity of banking practices, public banks are actually easier to regulate than private banks.”