I have followed with keen interest the course of the debate on the Bill which is before the House replacing the Ordinance to nationalise 14 scheduled banks. I have also followed the expression of opinion even outside this House in the newspapers and in other forums. I have been deluged with letters and telegrams and crowds of people.
I must say that the reaction of the people all over the country has proved that the step we have taken commands the support of the overwhelming majority of the people of our country. There are, of course, professional Cassandras who have, throughout these years of Independence, prophesied doom and spread despondency. But like the Trojan prophetess, they are fated to be unbelieved. Fortunately, the noises they make are inversely proportional to the weight of their argument or even to their numbers, as our friend Shri Dwivedy said earlier. The nationalisation of 14 banks is totally justified on strictly economic terms as well as in terms of the broad objectives which we have pursued and shall continue to pursue so as to ensure that the hopes and aspirations of millions of our people are not sacrificed. As early as 1954, the objective of a socialist pattern of society was adopted by Parliament. This was followed by the growth of the public sector investment, which provided the basic infrastructure for further industrial development.
One honourable Member opposite pointed out that I have given public expression to the deficiencies of the public sector. But, I have also said, and I do believe, that the debate between the relative merits of the public and private sector is rather artificial. They both have a vital role to play in our economy. (Interruption)
But, when I express criticism of the public sector, let it not be understood that the private sector is the embodiment of virtue. Indeed, its record is not such as to evoke inspiration or enthusiasm. And if this sort of ill-informed lobbying continues, as my colleague the law minister mentioned the other day, The government has enough evidence to show the woeful state of affairs prevailing in different sectors of private enterprise. I would, therefore, earnestly urge (Interruption) those who deride the public sector day in [and] day out and run it down to act with greater responsibility and prudence.
The more one examines the manner in which most commercial banks in the country were functioning, one is led to the view that the measure which we are debating in this house was inescapable and absolutely necessary. I would like to remind this House and some of the honourable Members who have spoken against the measure that there is a vital difference between banking and other industries, My honourable friend Shri Chandra Jeet Yadav also mentioned this point. The financial stake of the shareholders in the banks is almost negligible. The paid-up share capital and the reserves of the 14 banks constituted hardly 2.4 per cent of the deposits. As against a total deposit of nearly Rs 2,750 crores of these banks at the end of December 31, 1968, the paid-up capital was only Rs 28.5 crores or just a little over one per cent.
The bank managements were thus operating almost exclusively with other people’s money. This aspect of banking has always been a source of concern even in countries which do not profess socialism. Indeed, as honourable Members probably know, there are countries with a predominantly capitalist economy who have either thought fit to nationalise their banks or subjected them to extremely vigorous surveillance.
France found it necessary to nationalise its banks and the law relating to nationalisation was voted [on] within two days almost without any discussion of the six large banks there, four were nationalised and two were left out for certain reasons. These two together have only 1/20th of all the banking assets of France. Similarly, in Italy, four out of the five big banks are in the States sector.
In Sweden, the government acquired the capital of two banks, and they were amalgamated in 1950. Frankly, it is difficult to understand the rather wild statements which have been made against the measures and the consequences which are being prophesied. People have raised the question of social control and have asked why it could not have been tried for a longer period. Social control had many useful features, such as the emphasis on professional management, which will still be valid. It had also defined higher priorities for agriculture, export and small industries.
But the weakness of social control was that in many banks, people who had been controlling their policies in the past continued to exercise their influence over them in one way or another, sometimes by the continued presence of the old Chairman or Vice Chairman on the Boards of these banks. The banks might, as some did, obey the instructions and directions given to them. But there is all the difference in the world between people who carry out a policy wholeheartedly and with enthusiasm and those who do so only because of certain instructions. But even these directions given were not followed by some banks. We cannot continue to ignore the impatience and frustration with which the under-privileged look at our efforts to help them stand on their own feet.
It has also been asked here why we have not included foreign banks in this legislation. Foreign banks are part of a worldwide organisation and this enables them to give certain special facilities and services to exporters and importers, and for this type of service Indian banks do not have an adequate network of branches abroad.
Surendranath Dwivedy: Are you restricting the operation of foreign banks only to this purpose?
Indira Gandhi: We will go into that later. Foreign banks also have an intimate knowledge of parties in other countries on whom export bills are drawn by Indian customers. Foreign banks thus have a distinctive part to play, in raising foreign currency loans and administering them on behalf of their parent office, rendering service to tourists and in the spreading of information about business opportunities in India and in the other countries in which they operate. At the same time, foreign banks are under strict regulation. One of the rules which has been adopted is to restrict foreign banks to port towns only and only such foreign banks as have already opened branches in the interior
Surendranath Dwivedy: Grindlays Bank has 53 branches.
Indira Gandhi: Those who had opened branches previously in the interior are allowed to do business outside port towns. The Reserve Bank of India will permit the expansion of a foreign bank only where it is found necessary, to enable these banks to render more efficient service to the Indian consumers in financing foreign trade and tourism. The other criticism was about leaving out the small banks. The purpose of nationalisation is to promote rapid growth in agriculture, small industries and export, to encourage new entrepreneurs and to develop all backward areas. Banks with deposits of Rs 50 crores and above have branches in many states. As against this, the operations of smaller banks are limited to certain specific regions. With their wider coverage, the 14 banks which we have taken over would be in a better position to implement the government’s objectives than smaller banks.
Smaller banks already cater mainly to the smaller borrower, as is revealed by the fact that the average size of a loan account is very much smaller in the case of these smaller banks. Small banks are part of the community in which they function and small businessmen and small industrialists have some say in their operations. Some differentiation is already being made between the bigger banks and the smaller ones in respect of a number of regulations.
We have no intention to set up a central monolithic agency to run all these banks. While we must strengthen the machinery at the Centre, there will be autonomy for each bank and the Boards will have well-defined powers. We will give directions but these will be on policy and general issues, not on specific loans to specific parties. We shall be vigilant about the dangers of too much interference-whether it is motivated by political or other considerations. An honourable member said that these 14 banks would be outside the purview of the Reserve Bank. This is not at all true, because they remain scheduled banks and the Reserve Bank’s powers with regard to them also remain.
This will not reduce the Reserve Bank to insignificance. In fact, it can become more significant and purposeful and the Reserve Bank’s organisation may have to be strengthened and given new definite directions. I entirely agree with those honourable Members who have said that there should not be bureaucratisation. We must preserve the initiative and incentive as also the identity of these banks.
We are taking powers to re-organise them, after preparing a scheme and placing it before the House. But we want to do this in a way which will not eliminate healthy competition or initiative. There has been some talk outside of honourable Members being led by the Communists. I think I should warn the honourable Members to be a little careful in such remarks because they will find themselves in the same camp as the Chinese News Agency, for if the extreme Left parties echo these times, they will be in the company of Naxalites or worse.
Madhu Limaye: Nonsense.
Indira Gandhi: At this moment the words some of the honourable members are using are exactly the same as are used by the Chinese News Agency.
Perhaps, some honourable members have [a] guilty conscience. Anyway, I should like to take this opportunity of assuring shareholders that the compensation we have provided is fair and equitable. We are also trying to make payment of compensation to the actual shareholders as quickly as possible, as has been explained by the Law Minister. An honourable Member has said that the payment in the form of Government securities would cause hardship to the shareholders. I should like to rebut this very strongly. Only recently the Government of India floated a loan at 4} per cent, repayable in seven years. These securities sell at a slight premium in the market. The thirty-year loan carrying an interest of 1 per cent is also selling at a premium. For any member of the House to suggest that the new securities will mean a capital loss to the shareholder is the most dangerous and irresponsible remark to make.
It also happens that the poorer sections of the community are made to part with their assets at less than their fair value, by doubts being raised about their true worth. I hope no one in the House will say anything which will lead to such exploitation. The securities which will be negotiable can be sold and should fetch a price which does not involve any loss. I should like to assure the management and the staff of banks that we shall look after their legitimate interests and that from them we expect courtesy and co-operation.
There should now be no agitational approach without regard to the interests of the country or the banking industry. We hope that labour and management will be co-operative as well as responsible.
This is part of ThePrint’s Great Speeches series. It features speeches and debates that shaped modern India.