'RBI warning…': Congress's ‘calamity’ dig at centre on privatization of banks

In a report published on the RBI website, the authors have cautioned against ‘big bank approach of privatisation’

A cautionary note on “big bank approach of privatization of banks” in a report published on the website of the Reserve Bank of India (RBI) was cited by the Congress on Friday to attack the government. The article recommends a step-by-step approach to make sure that “large scale privatization does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission.”

The Congress said the government had not heeded the RBI warning on demonetisation. 

In a tweet, Jairam Ramesh of the Congress shared the observations and wrote in Hindi: “RBI warning!” The count of private banks has already gone down from 27 to 12. The government probably plans to bring down this number to 1.”

“As per the RBI, this is like inviting a calamity,” the former union minister said, adding, “But the Modi government also operates out of whims and fancies. Even for demonetisation, the central bank’s advice was not heeded.”

The 10-page report on the central bank’s website says that “despite the criticism of weak balance sheets, data suggests that they (public sector banks) weathered the Covid-19 pandemic shock remarkably well". “Recent mega merger of PSBs has resulted in consolidation of the sector, creating stronger and more robust and competitive banks,” it says.

While private sector banks are more efficient in profit maximization, their public sector counterparts have done better in promoting financial inclusion, the authors observe.

A footnote on in the report reads that the article “has been prepared by Snehal S. Herwadkar, Sonali Goel and Rishuka Bansal of the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India.’ It also clarifies that the views in the article are those of the authors and do not represent that of the Reserve Bank of India.