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It's Time Govt Got Rid of Its Imitation Jewellery

Aug 9, 2018


The government of India owns 21 public sector banks. One of the points that I have often made, over the year, is that the government does not need to own so many banks.

As of March 31, 2018, the bad loans of public sector banks stood amounted to Rs 8,95,601 crore or 86.5% of the total bad loans of banks.

Bad loans are essentially loans which haven't been repaid for 90 days or more.

Given the massive amount of bad loans, the government, as the major owner of these banks, has had to regularly invest money in these banks (i.e. recapitalise them), in order to keep them going.

In an answer to a question raised in the Lok Sabha, the government said on August 7, 2018, that it had invested Rs 68,729 crore in nationalised banks in 2017-2018. There are 19 nationalised banks. These were private banks which were nationalised by the government, first in 1969 and then in 1980.

The State Bank of India and the IDBI Bank are the remaining two public sector banks. In these two banks, the government invested Rs 8,800 crore and Rs 7,881 crore, respectively.

Hence, the total amount of money invested by the government in these banks stood at Rs 85,410 crore. It needs to be remembered here that every rupee that the government invests in these banks, is a rupee taken away from something else.

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Also, a lot of this money is being invested in some of the smaller banks which are in a terrible shape.

Take the case of UCO Bank. The total bad loans of the bank amount to Rs 30,550 crore or 24.64% of the total advances of the bank. In simple English, what it basically means is that a fourth of the loans given by the bank have gone bad.

In 2017-2018, the government invested Rs 6,507 crore as capital in this bank. The total loans outstanding of the bank are 1.89% of the total loans outstanding of the public sector banks. The loans of UCO Bank are less than 2% of the total loans of Indian public sector banks, but it got 7.6% of the capital invested by the government in these banks, during the course of the year.

Let's take another example here that of Indian Overseas Bank. As on March 31, 2018, the bad loans of the bank amounted to Rs 38,180 crore. This basically meant that 25.28% of the total advances of the bank, have gone bad.

In 2017-2018, the government invested Rs 4,694 crore in the bank to keep it going. Hence, 5.5% of the total capital invested by the government was invested in Indian Overseas Bank. The loans that have been given by the bank form around 2.3% of the total loans given out by the public sector banks, as a whole. In fact, in this financial year, the bank has received a further investment of Rs 2,157 crore, from the government.

Clearly, there is a problem here.

With a bad loans rate of both these banks being close to 25%, the bigger question is why is the government throwing more money down the drain. The government does not have an endless supply of money and it just doesn't make sense for it to try to rescue every public sector banks.

The third bank which has got a lot of money from the government, relative to its size, is the IDBI Bank. The bad loans of the bank amounted to Rs 55,588 crore or 27.95% of the total advances of the bank. In 2017-2018, the government invested Rs 7,881 crore in the bank, which was around 9.23% of the total money invested by the government in public sector banks.

The total lending by IDBI Bank amounts to around 3% of the total lending carried out by public sector banks.

Of course, the government has managed to palm off IDBI Bank to the Life Insurance Corporation of India and in the process, what was a problem for the government and the taxpayers, has now become a problem for the policyholders of LIC.

Banks like UCO Bank and Indian Overseas Bank are very small banks. If they are gradually shutdown they are not going to cause much of a problem for the Indian economy. The private sector banks or even the better public sector banks, for that matter, have the ability to move in very quickly to fill in their space.

Also, the government will not have to continue investing a massive amount of money to keep these banks going and can better allocate the money to more important areas like education, health, agriculture and defence.

Further, the taxpayers' money will be better spent.

The other way to look at it is that in order to meet such expenses the government needs to raise more taxes. And who pays these taxes? You and I, dear reader.

Of course, the government is not going to shutdown these banks, because governments in India consider public sector enterprises and banks, to be silver jewels. It's time they came to realise that a large section of these so called "silver jewels" have turned into imitation jewellery, which has very little value and at the same time needs a lot of money for upkeep.

Given this, it is more than time that the government got rid of this imitation jewellery.


Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul's Diary

PS: When the markets nosedive, that's the best time to put wealth building in motion. Small caps are crashing - that only means there is more opportunity than ever to buy them up - get our market-beating small caps recommendations here.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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3 Responses to "It's Time Govt Got Rid of Its Imitation Jewellery"


Aug 9, 2018

The govt from time to time is not serious in restructuring the banks. Vaibilty was sacrificed while expanding branches network.Nature of Business to handled is ignored. It has been a vegetable basket banking. Unnecessarily the developmental financial institutions like IDBI,ICICI etc who have been financing infrastructural and other long term prozect have been allowed to turn into deposit taking Commercial banks.THE IRBI was made defunt and put to liquidation. The commercial banks ,adopted the great idea of UNIVERSAL BANKING(DOING ANY TYPE BUSINESS) with out expertise in financing. The priciples required for long term and short term financing disappeared and only NPAs appeared. Too much Govt interference ,influence of too many regulators including a POLICE CONSTABLE,unabated corruption from top to bottom, etc have been active. If there is willingness there are so many ways of restructuring including putting many things under mat. Thanks to the instability in PSBs, upto middle level financing ,NBFS have snatched the major junk of business.Housing finance also slipped from the PSB Domain. Sorry State.The process of changing the colour of the garments by dipping in coloured water is not the answer.It is a time framed & planned operation and not election trick.

Like (1)


Aug 9, 2018

As the author mentions,govt is throwing money to a bottomless pit.In anycase,all public sector banks will collapse in 10 years from now.
Its high time govt stops helping them and allow them to have slow painless death.

Like (1)

Thiruvalluvan V

Aug 9, 2018


I do not agree with you. Please see why at all these banks were nationalised in the first place. Similar story in the opposite direction will be there ( Public lost money because of the bad practices of these banks). The reality is crony persons capture the place in the society where power/ money are available. Hence the solution should be to see that no thing is having more power / money with that. it may be government, private body or Religious institutions, media etc. The more dynamic solution will be the more some body (may be Institution) uses their power in the community, their value should be reduced by an amount the next time. That is the law of nature. The exponential charge or discharge of the accumulated parameter. Ex: We eat sweet / fruit etc. We feel very much tasty. We tend to eat more and more. The taste we felt each time reduces (apparently to us because of the saturation of taste buds). Hence we stop eating further sweet / fruit. This saturation part is missing in the Capitalist / consumerist culture. Till death each person wants live and consume as much as possible. That is promoted by the media as the aim of life.

Till that is incorporated ( culturally, legally, in the value system) in the community, we will have this type of issues. Hence your argument is flawed and not agreeable.

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