When the process of bank mergers began three years ago, the Central Government claimed that it was aimed at addressing the problem of “non-performing assets” or bad loans accumulated by many state-owned banks. However, the problem of bad loans has only grown from bad to worse since then.
More recently, the Union Finance Minister revealed the target of reducing the number of public sector undertakings to four or less in all strategic sectors. She stated that the aim of merging public sector banks is to “create fewer but stronger global-sized banks for building a $ 5 trillion economy”. She did not utter the word “privatisation”. However, newspapers have started reporting that the Central Government plans to further reduce the number of state-owned banks, from 12 to four or five, through privatisation.
As is the case with politicians of the ruling class, the truth lies hidden beneath their proclamations and promises.
When the biggest private commercial banks were brought under state ownership in 1969, the then Prime Minister Indira Gandhi presented it as a socialist measure, allegedly in the national interest. However, the decision to bring banking under state control was actually taken at the behest of the Tatas, Birlas and other big industrial houses. For these industrial houses to expand their wealth, and limit their dependence on foreign financing, it was necessary to draw on the savings of the entire population. It was also necessary to promote the development of capitalist and commercial agriculture, so as to create an adequate home market for capitalist industry. The promotion of capitalist and commercial agriculture, called the Green Revolution, required bank loans to be advanced to farmers for the purchase of tractors and other machines, chemical fertilisers and high-yielding seeds.
Privately owned banks were not considered credible institutions in which people from all parts of the country would deposit their savings. Establishing rural branches was a high cost operation which did not promise maximum profits. Bringing commercial banking under state control therefore became necessary. It served to concentrate the savings of crores of rural households and make them available to the big capitalists. It helped to expand rural banking and the home market for Indian capitalism.
Agriculture and small-scale industry were proclaimed to be “priority sectors”. State-owned banks were required to target a certain percentage of their lending to farmers and small-scale industrial units. Nevertheless, such “priority sector” lending made up a minor part of overall bank loans. The major part of loans was advanced to the big industrial houses.
The so-called public sector banks became in effect the property of the big capitalists as a whole. They could easily access large bank loans to finance their investments, however risky, by using their political connections and influence over Ministers and senior bureaucrats.
By the 1990s, the capitalist monopoly houses had succeeded in concentrating the bulk of India’s wealth in their hands and in creating a huge home market for industrial products. By the turn of the century, they were investing huge amounts of their capital abroad. To fulfil their needs in these conditions, successive governments began to implement “banking reforms” under the banner of globalisation, liberalisation and privatisation.
The process of reforming banking began with licenses being granted for setting up private banks, with the condition that no single monopoly house could own more than 10% of a single bank. At the same time, state-owned banks were listed on the stock market, so that private capitalist companies could start enjoying a share of their profits. Increasing pressure started being applied on these banks to compete and become as profitable as the private banks. Many of them started opening foreign branches to serve the needs of global expansion of Indian capital.
Recent years have witnessed further developments such as the establishment of Payment Banks by Reliance, Tatas, Birlas and other monopoly houses, to take advantage of the growth in digital payments to rake in maximum profits.
The requirement of capitalist monopoly houses at the present time is for banking, insurance and other forms of financial intermediation to make maximum profits, as they do in the advanced capitalist countries. The profits pocketed by financial companies in our country are at present about 15% of the total profits of all registered companies. This ratio is over 40% in the USA. Indian monopoly houses are eager to narrow this gap.
The Central Government has made it clear that the ultimate aim of banking reform is to create at most four giant-sized banks in the public sector, competing with several giant-sized private banks, all driven by the motive of reaping maximum profits. Keeping some of the biggest commercial banks under the control of the Central Government is meant to prevent foreign capitalist groups from gaining control over the financial resources of the country.
To summarise, bringing banking under state control served the interests of the big capitalists 50 years ago. Their interests in present conditions require the expansion of private banks and further concentration of banking capital through mergers and privatisation. While government policy is presented as being in the national interest, the real aim is to satisfy the greed of monopoly capitalists for maximum profits and to support their global expansionist drive.