Recently the Odisha government has disqualified three major private sector banks from the empaneled status thereby restricting them to access government deposits of funds. This has created a huge impact in the public mind and people are apprehensive about keeping funds in these banks although they offer lucrative interest rates against deposits.
Certainly it will adversely affect their business in the state. But going by the compulsion on the part of the state government it’s stated that these banks are under performers during the last few years in implementing government flagship programmes and extending lending in priority sectors. The government from their side issued show cause notices to these banks for improvement but no visible signs of improvement was there.
Let’s go back to the bank nationalisation issue about fifty years ago. What prompted the Indira Gandhi Government to nationalise the banks? It was because the banks didn’t cooperate to implement the government schemes and programmes particularly in the agriculture sector and poor outreach in rural areas. The scenario is still prevalent in the present days and the biggest culprits are these major private sector banks. While they grab a lion share of the government deposits they don’t cooperate with the state government in extending loans in priority sectors and also don’t extend their services in rural areas.
As ascertained after SBI and Union Bank, these three private sector banks hold highest deposits of the government amounting to around one lakh crore rupees their contribution in priority sector lending is very negligible in spite of repeated reminders to improve their performance.
It’s quite interesting to note that the Credit Deposit Ratio in Odisha hovers around 48% against the national average of 80%. It implies that the deposits collected from Odisha are being utilised by the banks for disbursement of credit outside the state, say, Mumbai, Kolkata, Bengaluru or Delhi. It is definitely at the cost of the interest of the people of Odisha. States like Tamilnadu and Telangana have CDR @ 115% and 111% respectively. In this process while states like Odisha suffer, Tamilnadu, Telangana and Andhra Pradesh tend to gain. It’s quite unfair on the part of the banks to follow unfair treatment.
From the banker’s perspective it is argued that the credit absorption capacity in states like Odisha is poor for which this scenario takes place. But this is not acceptable since it is the mandate of the banks to promote entrepreneurship in the state with hand holding support extended to the young entrepreneurs.
It reminds me of an incident a few years back when I was addressing a meeting on the state budget. Two gentlemen from the audience made a ruckus alleging that the budget was silent on employment. Then I wanted to know their background. Both of them admitted to be ex bankers of a major public sector bank. Then I said that employment includes self employment and as bankers they had a major role in promoting it. I asked them as bankers how many entrepreneurs they had promoted in their careers. They were not in a position to reply. I took the opportunity to remind them that they had no moral ground to question employment opportunities in the budget. Both of them kept quiet thereafter.
It is therefore very pertinent to say that the banks that fail to extend credit don’t have the rights to take government deposits in the state. In that sense the action of the Finance Department is without prejudice and amply justified. However, there’s no reason for the public to panic. No doubt the performance of these banks from the individual customers point of view is quite remarkable compared to public sector banks. Secondly, their IT infrastructure is equally robust and customer friendly.
However, now the state government has the onerous responsibility to raise the CDR in the state on par with the national average with active participation of the banks. This will require a carrot and stick principle with the banks. While those performing well should be patronised and those who show poor performance should be punished.
(Opinions or perspectives shared in the piece are solely those of the author and do not necessarily reflect the views, policies, or positions of the organisation)
