Economic Survey 2020, Volume 1 Chapter 7 (Golden Jubilee Year Of Bank Nationalisation) – Economics

Table of Contents

INTRODUCTION

In 2019, India completed the 50th anniversary of the bank nationalization programme undertaken in
As PSBs account for 70% of the market share in banking, an assessment of the state of India’s public sector banks (PSBs) is apposite.
India’s banks are disproportionately small compared to the size of its economy.
In 2019, when Indian economy is the 5^thlargest in the world, our highest ranked bank—State Bank of India— is ranked a lowly 55th in the world and is the only bank to be ranked in the Global top 100.

SBI was founded as Bank of Calcutta in 1806, took the name Imperial Bank of India in 1921 and became state-owned in
The remaining PSBs in India were formed through two waves of nationalizations, one in 1969 and the other in
After the 1980 nationalization, PSBs had a 91% share.
As of March 2019, PSBs had 80 lakh crore in deposits and made loans and advances of 58 lakh crore.
They also hold about 20 lakh crore of the government debt, a large part of it driven by the requirements for a minimum “statutory liquidity” ratio.
The decline in PSB market share has been largely absorbed by “new private banks” (NPBs), which were licensed in the early 1990s after a liberalization of licensing rules.

PSBs enjoy less strategic and operating freedom because of majority government ownership.
Government exercises significant control over all aspects of PSB operations- from policies on recruitment and pay to investments and financing and bank governance.
It results in an implicit promise of the bailout of bank liabilities.
It also subjects PSB officers to scrutiny of their decisions by the CVC & CAG.
With no real restrictions on what can be investigated and under what circumstances, officers of state-run banks are wary of taking risks in lending or in renegotiating bad debt.

The allocations of banking resources to rural areas, agriculture, and priority sectors
The number of rural bank branches increased 10-fold from about 1,443 in 1969 to 15,105 in 1980.
Credit to rural areas increased from 115 crore to 3,000 crore.
Deposits in rural areas increased from 306 crore to 5,939 crore.
Credit to agriculture expanded 40-fold from 67 crore to 2,767 crore.
RBI after nationalization also introduced PSL norms which led to this growth.

In 2019 public sector banks reported gross and net NPAs of 4 lakh crore and 4.4 lakh crore respectively.
This is amounting to about 80% of the NPAs of India’s banking system.
The gross NPAs of PSBs amount to a significant 59% of their gross advances
In 2019, PSBs suffered losses of 661 billion compared to profits of 421 billion of other scheduled commercial banks.
Besides the NPAs, frauds are another source of concern in
PSBs account for 9% of the 5,835 cases of fraud reported in 2017-2018.
PERFORMANCE COMPARISON B/W PSB & NPB

Previously, The Narasimhan Committee (1991, 1997), Rajan Committee (2007), P J Nayak Committee (2014)
Have provided several suggestions to enhance the efficiency of PSBs.
The Survey, therefore, focuses on 2 ideas for enhancing the efficiency of PSBs that have hitherto not been explored.

Artificial Intelligence & Machine Learning
The data that can be employed for credit analytics is available in both structured and unstructured form.
Data in a structured form include credit information and credit scores based on loan grants and repayments held in the credit registries or credit bureaus.
The richer, though unstructured, micro-data is available in text, images, geo-tagged data, social network data, mobile apps, etc.
Leveraging these data requires new data, analytics, and modelling skills.
Banks need to invest in credit recovery

A large proportion of NPAs of Indian banks, especially PSBs, could have been prevented if data and analytics were employed in corporate lending.

A large economy needs an efficient banking sector to support its growth.
Should India’s banks play a role proportionate to its economic size, India should have 6 banks in the top 100.
The survey suggests use of FinTech (Financial Technology) across all banking functions to enhance efficiencies in PSBs.