Privatization (of Banks) versus Government
By: Amit Bhushan Date: 1st Oct. 2018
Even while the media has started to discuss ‘issues’ around banks especially the Public Sector banks, we still seem to be going nowhere. This is because nearly every day new information comes out of still newer Institutions almost falling and fresh rescue attempts being launched. The How and whys of these failures remain well-hidden from public gaze and a stupid chorus of seemingly intellectuals craving around privatization further clouding the scene. Though we have the news about this fancy leasing company’s subsidiary going kaput, however we don’t have the key cases in NCLT being discussed which may have resulted into the failure. So what is being attempted is ‘reforms during dark clouds’ with little attempts at transparency, something that is likely to have its political impact sometime. It may be noted that ‘old age private banks’ with ‘seasoned management’ haven’t done well and neither have we any news about smaller Urban Cooperatives doing great. The larger private sector new age banks may have just about manage to sustain the crisis a bit better but can’t claim to be untouched by the malady in corporate credit. In effect, they just about managed to ‘exit’ troubled accounts faster, rather than getting struck like their counterparts in other banks be it the PSUs or old age private banks. To say that they were or are not amenable to ‘adverse selection’, and therefore to privatize the entire sector might be a bit far- fetched. In fact one should be looking at ways to have better oversight over the sector, rather than bogus debates that don’t let people ‘know’ why the systems failed, including fixing of accountability.
There are ongoing issues with musical chairs amongst Directors and Auditors which is seldom reported or monitored and these people are often retain the ‘influence’ not only from the enterprise they walk out off, but also others. There seem to be a lack of a government body as well as any credible NGO who would monitor, track and report such activities for the Listed as well as large unlisted entities, especially those enjoying large amount of bank/public financing. These activist NGOs in financial sector are as much needed as NGOs in Environment sector, especially so because the ‘commercial news media’ has huge tendencies for blackout on such information, which is pulled out only when there is some select usage of the same. The point is not that we have defaulters, but quite a few of these defaulters also manage to not only qualify for new projects but even manage to get bank finance for the same without which these projects won’t get executed perhaps. This is even as the Central bank regulations to prohibit fresh loans to defaulters or their concerns. It may be noted that such financing is not done by just these laggard banks but also the so called ‘better ones’, and so grounds for privatization is perhaps doesn’t stand.
What would perhaps do the trick is to find out and make public what some of these institutions would do for certain select groups that they won’t do for the larger public or other sundry businesses. While it has become fashionable to talk about the same for the government now-a-days, however much of it is limited only to center or some key politicos, the same is yet to be extended to states and government undertakings be it central or state undertakings. Instead we have politicos talking about either one-off cases or their personal grouse aloud which no one else except some select souls within the commercial news media might be interested in. Of course the history of such efforts as well as geography besides politics & economics is yet to come out, but at least it has started to pour steadily in terms of information flow in some or the other cryptic manner. Let the ‘Game’ evolve…
Amit Bhushan’s provocative piece, “Privatization (of Banks) versus Government,” penned in 2018, remains startlingly relevant to India’s ongoing debate around banking reforms. It challenges the simplistic, often one-dimensional call for the privatization of public sector banks (PSBs), instead pointing to deep-seated structural inefficiencies, regulatory failures, and lack of transparency—issues that plague
both public and private banks in India.
At its core, Bhushan’s article warns against
reform-by-misdirection—a cosmetic makeover driven by headline narratives rather than real systemic overhaul. The knee-jerk response of promoting privatization as the panacea for every banking crisis is, according to Bhushan, a flawed assumption. His critique is not rooted in a romanticism for the public sector but in a pragmatic observation: that private players, especially old-age private banks and cooperative banks, haven’t exactly inspired confidence either. Many have faltered, some spectacularly so, while a few have simply managed to shield themselves better by exiting risky portfolios before collapse—not because of superior ethics or better governance, but often due to
better connections or swifter maneuvering.
Privatization Isn’t a Silver Bullet
The author rightly underscores a key paradox:
If privatization is the answer, why have private banks also had their share of scandals, failures, and NPAs? Whether it’s YES Bank, IL&FS, or even major cooperative banks like PMC, these private entities have demonstrated that they are not immune to mismanagement or fraud. In many cases, the difference lies not in operational ethics but in
public perception and media coverage. Where PSBs are grilled under the national spotlight, private banks are often shielded by selective reporting, regulatory opacity, and a fragmented watchdog ecosystem.
Moreover, Bhushan hints at a
deeper malaise—a revolving door culture among auditors, directors, and other gatekeepers. These individuals, he suggests, maintain influence long after they move on from troubled institutions, sometimes even facilitating loans to defaulters or failed businesses under new disguises. What’s missing, he argues, is not privatization, but
accountability and transparent oversight, especially in lending practices and governance norms.
NGOs, Regulation, and the Need for Oversight
Bhushan’s call for stronger, perhaps even activist-style NGOs in the financial sector is an unconventional but compelling idea. Just as environmental NGOs hold corporations accountable for pollution and ecological violations, similar watchdogs in banking could
track defaulters, monitor large loans, flag irregularities, and keep both private and public banks on their toes. This kind of third-party vigilance would help plug a gap that regulators like the RBI, burdened by bureaucracy and limited investigative scope, sometimes leave open.
Additionally, the
media blackout around significant cases—such as those under the National Company Law Tribunal (NCLT)—is a major concern. Only high-profile failures or politically opportune defaults tend to be covered widely. A large number of bad loans, restructuring efforts, and regulatory loopholes fly under the radar, escaping public scrutiny.
The Role of Government and Political Will
The critique isn’t limited to banks alone—it extends to
governments at both the Centre and state level. Bhushan suggests that political interference, one-off policy announcements, or the blame-game theatrics often distract from institutional reform. He subtly implies that politicians may prefer this opacity, because transparency could expose not just corporate malfeasance but political collusion. In this context, privatization serves more as a
convenient scapegoat than a real strategy.
What’s required, then, is not a wholesale shift to private control, but a
reimagination of banking governance. We need mechanisms that ensure:
- Independent, empowered regulators with teeth.
- Transparent lending disclosures, especially for large loans.
- Cross-bank audits and performance assessments.
- Public databases tracking defaulters, their new ventures, and any subsequent financial support they receive.
- And most critically, laws that enforce accountability on the part of decision-makers—whether they’re in the boardroom, audit committees, or finance ministries.
Conclusion: Let the Game Evolve—But With Better Rules
Bhushan’s closing remark, “Let the game evolve…,” is more than just a poetic sign-off—it’s a reminder that financial systems are complex, and reforms must be iterative, not impulsive. If the goal is to make the banking system robust, resilient, and fair, we must resist the urge to pick simplistic sides. Public or private isn’t the real debate. The real question is:
Who is watching the watchers? Who is tracking the loans? And who is protecting the common depositor from institutional betrayal?
Privatization might be one tool in the toolbox, but without
transparency, regulatory courage, and citizen-led accountability, it’s just a different mask on the same problem. The game can evolve—but only if we finally start playing by rules that value public interest over political or corporate expediency.
