I must thank readers for their responses. In general, it is remarkable how many readers see a call for improving the performance of the public sector as an attack on the public sector. It would seem that far too many of us are still fixated on ideological questions, of public sector vs private sector and the merits or demerits of each, when we should be doing what Deng Xiaoping did: looking not at whether the cat is black or white, but at whether it catches mice. Or, to suggest a variation: irrespective of its colour, how to make it catch mice.
ALSO READ: T N Ninan: Reinvent state-owned banks
1) Deepak: Nationalization of Private Big Business is Good for the Poor and Bad for the Super-Rich. In the long run, therefore/however, it turns out badly for the Poor. Privatization of Public sector and increasing all-round Private sector intrusion is Good for the Super-Rich and bad for the Poor. In the long run it therefore turns out to be bad for the Super-Rich. One must conclude that neither Privatization or Nationalization will serve anyone's interests in reality. Both extreme Private sector and Public sector can desolate and wipe out economies. It is how it is done which is more important. Let us rise above these binaries and work towards Improved Governance and Professionalization in all parts of the Economy. Both the Right and the Left seduce us into easy convenient conclusions but the reality is that both sides promote such ideologically-confined, narrow, short-sighted, and unworkable illusions. Selling Empty Dreams. Rise above university-taught illusions and engage with reality Mr Ninan.
T N Ninan: Perhaps you did not read my column carefully. I don’t make sweeping statements about either public or private sector. There are plenty of private sector banks that have run into trouble, in India and in many developed countries. In my column, I looked at real-life examples of what has been happening in India. I did not argue for privatization; I asked for market discipline and said we need to deal with public sector banks differently, lest they go the way of other public sector entities like Air India and BSNL. That is not a “convenient” conclusion, nor does it have anything to do with illusions or ideology.
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2) Shivaramakrishnan: Sir Whether icici bank and Hdfc bank are participating in agricultural loan and educational loan melas like public sector banks.Recently implemented financial inclusion schemes how many private banks are participated.Government tie the hands and legs of public sector banks when compare with private sector banks. In telecom industry also, Mtnl and Bsnl cannot do any expansion without Govenment permission.But Reliance and Airtel is permitted to do anything they want.
T N Ninan: That is why I said we need to deal with public sector banks differently. Many things need to change – how chief executives and directors are appointed, salaries for senior appointments, the relationship with the shareholder (ie the government), the extent of operational freedom, and so on.
3) Sundar: During 2008 sub prime crisis, the same PSU bank chiefs and RBI prevented our Banking system from collapse by making tight rope walk, and in a way both mix of PSU bank and Private Sector banks needed for social reengineering and we can not blame their style. And also suddenly they will not be able to come clean on NPA, as these present incumbencies have to carry the old legacies.
T N Ninan: The public sector banks are much better and healthier than they were 20 years ago. But they are not yet good enough to stand up to open competition. I therefore argued that they need to get better, for which many things have to change. In essence, they give too many bad loans to businessmen, write them off and then go to the government for fresh capital. That is a tax on ordinary citizens for transferring money to businessmen, and cannot be defended in the name of saving the system (which in India was not at risk in 2008, as no private or public sector bank got into trouble) or in the name of “social re-engineering”.
4) R Subramonian: The Public sector banks should reinvent themselves. Become more customer friendly and should operate for profits. They should stop providing loans for the Government in powers largesse.
5) K Mundanad: This refers to the statement: “the great majority continues to trust government-owned banks much more when it comes to parking hard-earned money”. If the insurance sector issue policies covering deposits above Rs.100k (up to Rs.100k is covered by Deposit Insurance Corporation) of private sector banks (as there is no risk of public sector banks being wound up), there could be gradual change in this regard.
T N Ninan(response to 4&5): The overwhelming majority of bank accounts have deposits of less than Rs 1 lakh. As for those who have bigger accounts, they are disproportionately with private sector banks. So the issue is not deposit insurance, which taxes healthy banks to shore up unhealthy ones. The point is that public sector banks have a government guarantee against failure, plus access to unlimited capital because the government keeps forking out fresh money (I think it is Rs 14,000 crore this year). That is a huge tax on ordinary citizens, who would not have to pay if the public sector banks improved their performance, lent money more carefully, and earned enough of a profit to finance growth.
6) P V Rajeev: The Finance Ministry should stop capitalising public sector banks. Let them get capital from the market as private banks do.
T N Ninan: I agree. That will impose market discipline.
7) Akhil: Mr Ninan needs to be commended in opening this debate on Big Business versus Public Enterprises and the Performance Gap. There is a burning need to discuss this issue. However, one cannot analyze the Performance Gap between Big Business versus Public Enterprises, without bringing in the Role of the State currently. A State in the tight grip of Big Business which is pressganged into designing and pushing in economic policies and frameworks with the sole aim of Guaranteeing mounting profits for Big Business no matter how the Economy at large is doing. A State which no longer needs to be prodded periodically into delivering profits for Big Business but which is now permanently at their beck and call as we have seen over and over again through the last decade. And who bears the costs? All this Easy Profit for Big Business can be generated only by transferring the costs of these one-sided policies to the Public, Public Exchequer or the Public Enterprises. This is a State which Crawls and shashtangs when merely asked to Bend and Genuflect. Witness the current situation where specifically designed policies are overloading Big Businesses with spectacular profits and the Sensex is crashing through the roof. All this while Economic growth has been tanking to a multi-decade low. This active servility intentionally designed to ensure the undeserved prosperity of Big Business while the Economy as a whole is being hollowed out. Some of these policies are Resource Loot at contemptibly low prices to Big Business (and in Gas at very very high costs to the Public), Public-Private Partnerships, Ordering Public Banks to provide Cheap Money to Big Business and then making it even cheaper through Loan 'Restructurings'. Through Privatization, Public Fund Loot and others. Policies through which profits are cornered by Big Business and Risks and Responsibilities are transferred to the Public and public entities. This Set Up GUARANTEEING Superb Performance by Big Business no matter how they are actually doing. Through a Moral Hazard version of Capitalism. While orphans like the Small and Medium Enterprises and the Public Sector have to bear the burden of these rosy performances - picking up the tab and languishing in ignominy. To top it "Public Good" is the excuse used to cover-up this Historical-sized Free Ride and Free Lunch. Touche! A smooth stilleto to the heart. If we analyze the Public-Big Business Performance Gap without looking into the Role of the Indian State, this is like a performance of Hamlet without the Prince of Denmark. And this Mr Ninan is the real story of the Performance Gap while you take only a superficial, one-sided, 'convenient' look at this Performance Gap. Deliberately?
T N Ninan: It is difficult to comment when so many sweeping comments are made.
8) Tejendra Roy: Extremely biased and dogmatic write-up. Bashing up public sectors is lazy and tired rhetoric and serves no purpose. The Chinese are a world power on the strength of their state owned banks and companies, while we are determined to destroy our state owned resources.
T N Ninan: Such responses show how difficult it is to communicate even simple arguments. Readers see it through the prism of their own worldview, and form impressions that have nothing to do with what has actually been written. I did not “bash up” public sector banks, or ask that state-owned resources be “destroyed”; I thought I argued the exact opposite. And as it happens, the Chinese have been implementing major reforms of their public sector. Why don’t we do the same?
9) Ashok: Why not reverse the nationalisation of coal and banks, authored by the same failed economic orthodoxy ? When there is not enough ATF to keep Air India One airborne, many such seditious questions will be asked.
T N Ninan: Privatisation is one option, but it is not the only one and not always or necessarily the best solution. It is important to ask who will buy banks if they get privatized; I don’t think we want them to fall into the hands of big business conglomerates, as that could be systemically dangerous when crony capitalism is already a problem. It is possible to improve the performance of public sector banks; it has been done to some degree, but much more needs to be done.
10) Sanjeev Sharma: One should not go into history how the private sector had abused its powers in the banking, insurance and mining sector which had literally forced a reluctant government to Nationalize them. In today's world with the Global Crisis it might be appropriate to think once again in terms of Nationalizing these three sectors. But most of all Nationalization is slowly becoming an imperative in the Infrastructure sector where we have seen an unprecedented scale of looting and malfeasance. I mean obviously the Coal-Power sector where huge liberties have been taken in arbitrary dual pricing of coal; "gifted" coal blocks followed by diversion of this gifted coal; reworking of terms. Astoundingly commentators display a lot of chutzpah in defending the private sector shenanigans even though the naked dance of private greed is playing out in full regalia and regaling a public shaking its head in disbelief at the audacity and criminality of the Big Privates. And same is the case in the other Infrastructure sectors like Ports, Airports, Roads, etc. However, TN Ninan's point is well-taken that government should move out of sectors like hotels and bread-making.
T N Ninan: An argument for healthier public sector banks is not a defence of scams in sundry infrastructure sectors. Key sectors need effective regulation and policing. If the mining regulator is moribund, you will get illegal mining. If coal mines are allocated in a non-transparent manner, crony capitalism will flourish. There are specific solutions to these problems; most of all, you need a functioning state, not one that fails in its key tasks.
Meanwhile, please bear in mind that India would not have doubled the rate at which it adds new power capacity if the private sector had been kept out. Many states are already power-surplus, more will be power-surplus in a year or two. Without private investment in power, this would have been impossible. And, while the manner in which the privatization of Delhi and Mumbai airports was done was questionable on some specific financial issues (like passing on costs to consumers even though not allowed under the contracts), the end products are a vast improvement on what we had to put up with before.
11) SC Aggarwal: In my opinion, Mr. T.N. Ninan is very harsh in making certain observations in his article "Reinvent state-owned banks" (BS Nov 23, 2013). For example, he has made a comparison between chiefs of govt banks and private banks. First of all, I wish to make it clear that I have never worked in a Bank or in a PSU company like Air India or MTNL or BSNL. Mr. Ninan should be aware that chief of a PSU bank has to be polite before a serving Deputy Governor of RBI because he is not independent. A chief of PSU bank knows that there is a Finance Minister in India who is a super CMD of every PSU Bank and a PSU Bank chief has to bow before FM or Governor, RBI or Deputy Governor RBI or before the Finance Secretary and has to say "Sir" to them in every sentence because these people can make his life a hell at any time while Chief of a private bank is independent and he need not worry about FM or Governor or Deputy Governor of RBI. Mr. Ninan has talked about quality but he seems to be unaware that PSU banks are serving the masses. Even an illiterate person can open a bank account in a sarkari Bank and take a loan. While private banks serve only the classes i.e. who are moneyed people. Has Mr. Ninan ever seen illiterate persons having bank accounts in private banks? One email to Secretary (Financial Services) helped an OBC branch in my wife's village while SBI opened a branch in the ancestral village of my Hon'ble mother which cost me Rs. 5/- to have financial inclusion in both the over-populated villages. Can private banks provide such facilities in villages? No. Never. Mr. Ninan does not know the kind of quality service provided by private banks and how private banks loot the depositors? A deposit of Rs 25,000 in saving bank account in a private bank was reduced to Rs. 1700 due to various debits while such things never happen in a government owned Banks. Can Mr. Ninan without disclosing his identity obtain the email id of the CMD or MD of a private bank from the the manager of a private bank? Mr. Ninan has also talked of Air India and other sarkari companies like MTNL or BSNL or one may say ONGC. Are these companies being allowed to be managed? Recently, I was talking to someone of Air India's loss making record. After listening me the said fellow replied after one minute silence "Air India can again become the best profit making airline of the world within five years if there is no interference from .. ........". Mr. TN Ninan should know that there are invisible super CMDs of every sarkari company. A CMD of PSU company/bank cannot afford to disobey them. How to protect the sarkari companies from invisible super CMDs is a burning question?
T N Ninan: This raises a great many issues; difficult to deal with all of them here. It is of course true that private banks focus on richer clientele, which is one reason why wholesale privatization is not a desirable solution. But I should also say that I know of quite a few poor people in my neighbourhood who have found it difficult to open a bank account at the local branch of a public sector bank, until someone who is better off and able to talk to the bank staff intervenes.
12) VS Gurumani: The answer to the question at the end of this article is simple: Nothing will change, because when one digs deeper, one will find that each and every PSU Bank is linked in some way to some politician(s) who will pull strings to ensure that it is supported with fresh capital when it gets into trouble.
13) Shyam: Dear Ninan, unfortunately logic has seldom been the 'raison d'être' for running our PSUs. They have been become money-sucking, employment-providing enterprises. Employee unions call the shots and govt. has long lost the guts to stand up to them. Is there any accountability there? Looking at the NPAs announced by some of the PSBs, the management would have been hounded out of their offices, if they hadn't been PSBs. Its a free run for everyone(management, employees and the govt) at the expense of the poor, helpless & voiceless tax payer. Long live Socialism!!!
T N Ninan(response to 12&13): Politicians and others get away with the misuse of public sector banks because the government provides virtually unlimited fresh capital to the banks, to keep them going. If we address that issue, and force banks to face market discipline when they ask for fresh capital, it will force changes in the way public sector banks are run.