This post has been brewing in my mind for about nine months, since May last year. It is then time for delivery!
To start contractions, let me give you a joke that I heard around the time of bank nationalization in India, very late 1960s and early ‘70s.
A newly nationalized bank, forced to open a branch in a near rural outpost, sent one of its officers as a salesman to the nearby villages etc. He met a farmer and asked him, “Where do you keep your money?” “In a sack, and I won’t tell you where.” The bank agent says, “Oh, your money will be safer with us, in the bank and you can earn more money.” The farmer, “But, if I want to buy anything?” “No problem, you can take back how much ever you want; just write a cheque. Indeed, you can give cheques to anyone you want to give money to and they can take the money from the bank.” Bouncing cheques, angry farmer and angrier creditors to the farmer.
To make a long story short, both the bank agent and the farmer learned what banking is when it went rural. Banking literacy.
OK, the State Bank of India had been nationalized nearly a decade and a half earlier. But, it could not have carried out the education program, single handedly and across the nation; and it did not, despite exploiting through its rural penetration to become “the biggest gatherer of savings in India.” Hence, nationalization.
No, obviously it is not as simple as that, but this was definitely a part of the plan. To bring the wealth of the rural riches into the national market, from underneath the mattresses, so to say.
Read the article The struggle for the soul of India’s biggest bank in The Economist [1] and you would get not a whiff of this history. OK, you may say it has been told many times before. I agree.
Yet, when the article claims that focusing on infrastructure to grow the bank’s business, as SBI appears to be interested in, is fraught with danger – “may be in the national interest but not the bank’s. Many savvy private-sector rivals see infrastructure as a pit of politics, corruption and bad debts—and boast of steering clear of it” – that history had been subsumed.
Well, look at the picture below.
It is not just the State Bank of India.
The above branches almost scream "National Interest!". The Syndicate Bank branch says it is a "Financial Inclusion Village Branch".
Will any of the private banks even consider its branches looking like these? No. Their image is their message, all in their own interest and not in the interest of the nation. They need that glass front, tiled floors, modular furniture etc. Oh, nothing bad about all these as such, but something is indeed amiss if for want of a particular look a rural branch is not opened. OK, now that we have tools of ICT, may be people can do remote banking, no matter how remote a person is from a branch. Glass-enclosed and tile-floored banks can indeed serve people in thatched houses. Yet, that can only be a long-term hope, result. But, our needs are today.
I wonder whether our Planning Commission Deputy Chairman, is aware of the attitude of the private banks towards infrastructure lending. Our XII Plan targets 50% of planned investment, all of it in infrastructure, from private sources. Remember too, that investments in infrastructure pay back over the long term. No FDI in infrastructure! And, as private banks are shunning infrastructure investments, private sources have none to look to except nationalized banks and other development banks. Isn’t there a mismatch somewhere here?
A thought crossed my mind about why the 2008 financial crisis made “depositors rush back to state banks.” Did the sovereign guarantee available to the public sector banks at a higher level vis-à-vis private banks give an additional level of comfort to the depositors? To put another way, did the glass houses fail to provide comfortable living?
The banks have to bank on people, and even as they make profits they have to strive for people. The nationalized banks may be doing that, though from thatched sheds.
Raghuram Ekambaram
References
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