NEW DELHI: Privatisation is not a panacea for all ills, say RBI economists as they argue against big bang privatisation of public sector banks. The economists have instead argued for a gradual approach to privatisation so as not to create a void in fulfilling important social objectives of financial inclusion and monetary transmission.
A study by the economists of the Department of Economic and Policy Research, Reserve Bank of India, has noted that public sector banks (PSBs) are not solely driven by profit maximisation but they have done better in promoting financial inclusion. The study also notes that PSBs score over private banks on labour cost efficiency.
The study says that PSBs account for the highest share of bank branches in rural areas, followed by semi-urban areas. They also dominate in meeting the credit demand of rural areas – PSBs account for 63 per cent of rural credit compared to 16 per cent of private banks. Though private banks are making some inroads in rural areas, their progress remains slow, says the study.
The study says that when profit maximization is the sole motive, the efficiency of private banks surpasses that of PSBs but when “the objective function is changed to include financial inclusion —like total branches, agricultural advances and PSL advances PSBs prove to be more efficient than private banks”.
The PSBs’ also score over private banks in terms of labour cost efficiency. “This implies that incurring lower cost on labour, the PSBs can generate higher levels of output,” says the study. The RBI economists have studied the banks on various parameters since 2010.