Letters: Banking for big business
This refers to the debate “Should industrial houses be given bank licences?” (January 16). In its 1969 report, the Industrial Licensing Policy Inquiry Committee under the chairmanship of Subimal Dutt, noted “whether and if so, how far, the policies followed by specialised financial institutions in advancing loans to industries have resulted in any undue reference being given to the larger industrial houses”. In 1969, when the government nationalised 14 banks by promulgating the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969, a notable feature of Indian commercial banking was the control of major banks by leaders of commerce and industry. Banks were being run to satisfy the requirements of the wealthy — evident from the gradual erosion of their capital base. At that time, the ratio of paid-up capital and reserves to deposits declined by over 75 per cent — from 9.7 per cent in 1951 to 2.2 per cent in 1969. Moreover, the rapid increase in deposits in relation to their owned capital enabled the industrialist-shareholders to enjoy immense leverage. In this background, it was felt that if bank funds had to be channelised for rapid economic growth, then nationalisation was the only alternative.
Further, in April 1980, owing to some governance issues in private banks, six more banks were nationalised. At that time, these banks had deposit liabilities of Rs 200 crore and above. Instead of bringing back what was done away with utter difficulty, it is important to look into the reasons behind the failure of control of banks and take remedial action. In 2013, it becomes more relevant given the size of the corporate sector and influence of selective corporate groups. Moreover, the Financial Sector Legislative Reforms Commission still has to come with a clear framework as to “what will work in Indian context”.
Anil Kumar Angrish Mohali
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