According to news reports published on 19th May, a RBI Working Committee to Review Governance of Boards of Banks in India, headed by former Axis Bank chairman P J Nayak has submitted its Report with the recommendation that the government cut its holding in public sector banks to below 50 per cent.
Other Nayak panel recommendations include merger of public sector banks, transferring ownership of public sector banks to a “bank investment company”, repeal of the Bank Nationalisation Act and SBI Act, as well as bringing banks under the Companies Act, besides increasing voting rights of shareholders in public sector banks to 26 per cent from 10 per cent.
In effect, the Nayak Committee has recommended privatisation of the biggest banks in the country, which were hitherto owned by the government of India.
The Government of India nationalised 14 commercial banks on 19th July 1969, through the Bank Nationalisation Act, 1969. The rationale provided was that this would expand banking across the country, lead to better balance between rural and urban presence of banks, would enable the government to fulfill certain social objectives such as elimination of private monopoly control over banking and increase priority sector lending (i.e. lending to agriculture, cottage and small scale industry and so on).
The above was followed by a second phase of nationalization in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalised Banks to 20. The private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were allowed to work under strict regulation. After the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership.
The period since 1993 has, however, seen the slow reversal of that policy, through the grant of greater space for foreign banks in India, and also through the grant of licences to 12 private players.
The Nayak Committee recommendations are seen as a definite move to completely reverse the policy of nationalisation of banks. They have provoked very wide opposition from bank employees across the country. The All India Bank Employees’ Association, which claims membership of five lakh employees of public, private and foreign banks, has threatened to issue a strike call if the Nayak Committee report is not rejected. Other bank employees organisations which have opposed the move included the All India Bank Officers’ Association (AIBOA), Bank Employees’ Federation of India (BEFI), Indian National Bank Employees’ Federation (INBEF) and Indian National Bank Officers’ Congress (INBOC).
The employees associations are pointing out that this move is to destroy the character of public sector banking. It is being made in the name of good governance. AIBEA general secretary C. H. Venkatachalam said: “It is sad that the panel has recommended public sector banks to be handed over to private hands at a time when the bulk of the bad loans are attributable to the private sector. More than four lakh crore rupees of bad loans are due from the big private corporate and business enterprises. Given the bad track record of the private banks in our country, all the private banks should be nationalised and brought under public sector banking.”