Social Sector Finance

The responsibility of priority sector financing, which is with the public sector banks, should also be assigned to the private sector banks. Give arguments For and Against this view. Before the nationalization of the banks in the late sixties and early seventies, it was realized by the government that the bank finance was not available for the poorer sections of the society and only the industrialists or well to do businessmen were having access to the bank finances. The banks were also shying away from funding smaller projects for the underprivileged sections of the Indian society. Main aim of the nationalization of the banks was to ensure that the ownership of the banks rested with the government and the government could control and direct the flow of credit towards the sectors urgently requiring financing. Now, after almost four decades of bank nationalization many feel that the responsibility of financing the priority sector should also be assigned to the private sector banks. Arguments For the View (a) Private Banks are also part of the Indian economic system and have equal responsibility towards the Indian society. They have to be partners in the process of rapid economic development, which can be done if the Reserve Bank of India (RBI) assigns the responsibility of social sector funding to them also. (b) The quantum of fees and commissions being charged by the private sector banks are higher than those charged by the public sector banks. Hence, it is only reasonable that the category of the banks that earns more profits also shoulders the responsibility for social upliftment. (c) By assigning the responsibility of priority sector lending to the private sector banks, the RBI shall create a situation of healthy competition in the banking sector, with fair amount of competition for lending to all sectors. This would also provide the public sector banks with level playing field. Arguments Against the View (a) The government is the owner of the public sector banks and is well within its right to ask its banks to lend in any manner to ensure fulfilment of its democratic responsibilities of equitable distribution of resources. It would be unreasonable to expect the private banks to follow the same line. (b) Private investors carry out all the ventures with the aim of making profits. Forcing the private bank owners to lend to the less remunerative and more uncertain priority sector would be highly unreasonable. (c) It would be wrong to ask the under-privileged and the poor to avail the services offered by the private sector banks at higher service charges. It would be better if this responsibility remains with the public sector banks.