Our public sector banks, the banking regulator, the government, taxpayers, and countrymen- all remained fearful during the entire February month. A series of scams have shattered the whole banking system with a loss of about $2.5 billion. Lead by the diamantaire duo Nirav Modi and Mehul Choksi; fraudsters have successfully stolen a whopping amount from various state-run lenders who are disparately trying to get rid of bad loans.

The frustration reached a new height among Indians when over Rs Rs 11400 crore PNB scam, the biggest fraud in the history of Indian Banking to date, was unfolded.

From Twitterati to cartoonists, everyone expressed their anger in sarcastic and humorous ways.

What’s the Buzz?

Big Bull Rakesh Jhunjhunwala reacted with the statement, “There is no need for more than three PSU banks in the country.” He also predicted at the TiE conference that privatization of banks would be done sooner or later.

In the medium to long-term, these scams will affect both FDI and FII in the Indian financial markets. Altogether, the recent scams have given a new strength to people who are in favor of privatization of PSU banks. Even people who are not in favor of privatization of banks, also want some stricter actions from RBI, the regulator of all banks.

In India, the nationalization of banks started in the year 1969. The aim was to establish better control over the banking system and improve transparency in loan disbursal and deposits. But in the recent years, the nationalized banks struggle with challenges like slow loan growth, weak deposit accumulation, and NPAs. Their private peers are in a better position, though a few of the private banks also sail through troubled waters. So, the question arises, do we really need to privatize the PSU banks?

Privatization of Banks - A Good Option?

Today, nationalized banks have better penetration in the rural areas as compared to the private banks.

All the government schemes and farmer-related products are readily available in the PSU banks, whereas private players do not take much interest in serving rural customers even today.

In other words, public sector banks contribute actively to the inclusive growth. The opacity of public banks makes their regulation easier as compared to the private banks. The government’s interference and backing help these banks gain the trust of people and business organizations.

As a concluding remark, at this juncture, it is better to enforce better regulation and monitoring process rather making the public sector banks private or giving them bailout packages. Stricter and more accountable regulatory process is sufficient to make the banking system trustworthy again. The Reserve Bank of India has already started taking the corrective measures to reduce the rate of bad loans. Privatization does not look like a proper solution, and it may make matters worse.