The Day India’s Banks Died
They shouldn’t have been nationalized 50 years ago. So why is today’s government perpetuating the problem?
Public-sector banks remain weak and inefficient.
Photographer: Dhiraj Singh/BloombergFifty years ago, India took a wrong turn leftward from which it is yet to recover: On July 19, 1969, the government took over the banking system, nationalizing 14 banks which together controlled 85% of bank deposits. Today, even after a quarter century of liberalization, state-controlled banks still control 70% of the sector’s assets. As a consequence, credit is weak, the private sector is stunted and India has to endure periodic banking crises and bailouts at taxpayer expense.
The legend around bank nationalization is this: Indira Gandhi, India’s prime minister at the time, felt that banks served the interests of crony capitalists and sought to find a way to extend credit to India’s farmers. The only way to force banks to open branches catering to India’s vast rural population was to take them over, she thought -- and so she did.