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The scandal involving the Punjab National Bank, numerous other Indian banks and diamond merchant Nirav Modi has once again brought the issue of the crisis if Indian banking system to the fore. It is clear that the crisis is deep rooted than appears as a mere scandal. The government is arguing that it is the act of some bad elements and not a systemic failure. It is pushing privatization as a solution. Let us examine the issue from the beginning. The commercial banking system was started with the establishment of Bank of Bengal in 1809, Bank of Bombay in 1840 and Bank of Madras in 1843. These three were merged to form Imperial Bank, which was later nationalised and renamed as State Bank of India in 1955. The Reserve Bank of India was established in 1935 as a central currency and banking regulator. Following this several private banks were established by private share holders.

Between 1947 and 1955, about 361 private banks failed. The savings deposited by the people in these banks has all gone. In 1960s, there was one SBI and several private banks owned by big bourgeoisie. Only a tiny share of household savings, primarily from metro cities, was being deposited in banks. Bank credit was provided almost entirely to the industrial houses. The bank credit to agricultural sector is a little over 2 per cent in 1967.

The Indian ruling classes felt the need to have commercial banks to garner household savings from urban and rural areas, so as to utilize those funds for their capital needs. The private banks at that

14 time had neither interest nor capacity in expanding their operations to rural and urban areas. This is true even today as the private banks that were allowed to operate after new economic policies have very negligible rural operations. Moreover, the green revolution strategy that was ing implemented during 1960s necessitated the credit extension to agricultural sector to create market for chemical fertilizers and other inputs. Thus the government of India nationalized 14 banks in 1969 and another six more in 1980.

The then Prime Minister Indira Gandhi placated the nationalization of banks as a socialistic measure which would provide the cheaper bank credit to small industries and peasants, who were dependent upon usurious private money lenders.( Of course the situation did not change much even today). However the result was as predicted: The Indian big bourgeoisie gained control of the entire savings of the middle classes, who deposited their hardearned money in the nationalized banks with hope that their money was in the safe custody of the government. These savings were deposited( still being deposited) in the industrial, commercial and even speculative( as was seen in the case of Deccan Chronicle’ s betting in IPL cricket matches) operations of big bourgeoisie. Until the

Top 5 Banks’ Gross NPAs PSB Gross NPAs( Rs. Billion)

government issued orders to the Public Sector Banks( PSB) to lend 18 per cent of their total advances to the priority sector, the PSBs had not looked toward the agricultural sector.

After the nationalization, the banking sector expanded phenomenally and consequently the drain of bank funds by the big bourgeoisie, in both legal and illegal way, also grew phenomenally. The big bourgeoisie had vast finance capital at their disposal..

The big bourgeoisie have their representatives on the Board of‘ directors of PSBs. They also take position in the Board of RBI. The so-called independent directors are agents of the big bourgeoisie. Senior bureaucrats who are supposed to supervise the functioning of PSBs are offered lucrative benefits by the big bourgeoisie. Thus a nexus was formed to drain the money of people. When the big bourgeoisie refuse to pay back their loans on one pretext or the other, they were named as Non Performing Assets( NPA) and were later written off or the government in the name of recapitalization of banks provides them funds through budgetary resources. During the middle of 1980s, the NPAs of PSBs soared to more the Rs. 10 lakh crore, mainly due to non-payment by a score of big capitalists. The unions

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