The forgotten case for bank nationalisation

In the recent clamour for their re-privatisation, we seem to have forgotten the rationale for bank nationalisation and the crucial role public sector banks continue to play in war against poverty

The widespread excitement around re-privatisation of public sector banks (PSBs) appears to betray ignorance of both the basics of economic theory as well as large facts of Indian credit markets. I had occasion to revisit these recently when I delivered the inaugural KN Raj Memorial lecture at my alma mater, the Centre for Development Studies, Thiruvananthapuram.

The legendary economist and institution-builder K N Raj was the one who explicated the intellectual case for bank nationalisation in the 1960s. Economic theory explains why banking enterprises seeking to maximise their profits would not venture into areas and sectors of activity, which may otherwise