In some countries, banking sector is controlled by the Government. The banks are perhaps forced to allot loan of a huge amount of money to some improper persons/ businessman. It is a rumor that a large portion of that money goes in the hand of politicians.
So the money never returns to the banks and considered as ' Non performing Asset' of banks and afterwards that is write off. The names of the persons taking and not returning such loans never published.
It is a regular practice of every year.
A huge amount of public money become private property of some corrupted persons or wasted actually for some criminal activities.
According to some experts, de- nationalization of banks is the only solution.
What is your idea?
Banking should be in private hands, as socialism has fail in industry and commerce. However, government apex body should regularize bank activities to provide better and clean services to the customers.
Socialism is extensive form of capitalism where government has more than enough power.
The current global 'dualism' (private commericial banks create credit money/central banks try to police money) is a matter of social systems evolution, i.e. only this practice can maintain a capitalist economic system.
Personally, I am not in favor of monetary government control; try to read into: The Lost Science of Money from Stephen Zarlenga. There were only 3 great inventions in human history: the fire, the wheel, and central banking.
In developing countries, government control over the banking sector is preferred, because of inefficiency and experience that results in many financial crises, and the lack of sound and rational management, which has made the banks declare bankruptcy. While in developed countries private banks are the main backers of their economies.
Dear Dr. Omran,
Recently, a sum of Rs. INR 2.5 Million (laksh) Crore was write off as Non Performing Assets of Indian Banks!
It is almost a regular practice of every year!
Greetings of the days.
Dear Dr. Shibabrata Pattanayak , it is really an interesting and debatable issue. Including my country, all the banks are controlled by the national bank (owned by the government). As you said, most of the politicians in developing countries are very very rich, though they are earning a known salary. As you said, this might not been associated with miss use of the money available in the country. So, the politicians need to be ethical, honest and love their people and bring development in their country. I don't think, privatization of banks will prevent them doing the same (they use many options including force).
Really a thought provoking questions .In my opinion keeping the banks outside the government control is not a very good option as banks even after de nationalization have to move within the policy perspective which is going to be framed majorly by legislature (Government) .The better option is to have strong and influential opposition in a democratic country and strengthning the role of social groups and yes above all education system (Human value education) as in Nagaraj saying must be strengthened.
Private banking=credit money (issued out of thin air).
Central banking= policing money (done by statistics).
This is, how financial capitalism works.
Of couse, money causes economic cycles and crisis (2000-2008, ongoing), because it does not behave neutrally to the human economy.
The political experiments in communism have shown, that money most be more than just a coupon.
The question is important, look at money in depth and you will understand the complexity of your query.
In any case, money is socially too important, to being left to the bankers alone; it is a social issue.
You are right to ask into it !
Obviously some state control is to be preferred in developing countries but this is clearly offset by the problem of corruption. Having a central bank seems a viable alternation, controlling some aspects of a country's banking operations.
Increasingly, we are coming to social, economic and cultural issues with our preferences or to use the ugly word, biases. Both systems can be compromised, private control or government control. A number of us that bought into the magic of private enterprise for underdeveloped nations have seen bungled privatization, compromised policy making, messed up regulatory practice and the deepening of underdevelopment through corruption and its resultant distortions in public finance. And there is the arrogance of knowledge and institutional hegemony where the policy directions favored by western multi-lateral agencies appear to be the only ‘wisdom’ in town even when its poster men and women holding office as ministers and their policies etc are failing and have become the superintendents of corruption.
Unlike many other fields, economy deeply touches lifes of people and nations in a continues and in many cases in a quite severe manner. The discussion above confirms that economy is probably the most complex field of sciences for people to understand. Discussing what is better - to have a central bank dominance, or a private banking system, it is like discussing the importance of a bride's dress at the wedding for the future of the marriage.
People in masses all across the globe have a very weak or insufficient enough understanding of the laws of economic sciences and as to how it can be applied for analyses of multiple practical situations. Unlike mathematics, or physics, or languages - the laws of economy aren't in the essence strict inevitable laws but the trends, which cannot be warranted in any particular case; however, statistically speaking those trends are working as expected in the bulk of the cases.
Why it is so difficult to apply a 'law' in economy for a particular case? It is because the key categories, that this field of sciences is based or depends on are quite complex cornerstones by themselves. The notions of costs, taxes, market rules, debit/credit practices, civil and criminal laws, people property rights protection laws, a country political system's influence on business - all of that and some other ones affect the outcome of a particular economic trend.
Let's consider a simple example - you invested in a business x$, and another investor who you know concurrently invested in another business (x/2)$. In a couple of years, your profit is 10% on your investment, whereas the other one made 30% during the same time. What would you do? Most likely, you would ask yourself - am I stupid? I invested 1,000$ and got back 100$ profit, while that guy invested 500$, and got 150$. Your next step is almost transparent - you will take your money out of this business and invest into a more profitable one. That is one of the laws of economy - the trend of capitals reshuffling among possible business investment opportunities, which statistically leads to averaging out over time the interest rate on investments across the industries.
De- nationalization of banks is not the solution to reduce NPAs or to stop money from going into the hands of corrupt politicians. Banks need follow strict rules as far as lending is concern. The Insolvency and Bankruptcy Code (IBC) will help in dealing with defaults.
In case of Indian Economy, following completely capitalist approach in order to solve the problem will lead to increase in many more problems in the economy.
Dear Dr. Yadav,
Servants can never be independent.
Every conscious Indian know how the fraud businessmans get crores of rupees every year and what forces are applied on bank authorities to sanction loans to those fellows every year.
They also know it very well why the names of the persons creating NPA every year in the banks are never published.
I do not trust any ornamental rule/s can restrain it. These are made for eye washing of the Indian voters.
Ghosts can not be controlled by such mustard seeds, as the seeds themselves contain many ghosts.
Thanks.
Morality is in built in a society or a country, it cannot be enforced. No rules or laws can enforce a person to have a good moral values. Until n unless we have moral ethics, no system can improve. It is not the fault of the system, but way of our thinking.
Managing Banks is not difficult at all as yours truly has been able to experimentally prove - Mallick et. al. (2001), Mallick (1993, 2007) on www.researchgate.net/profile/Soumitra_Mallick, so the few specialised government managers can handle it fine.
Soumitra K. Mallick
for RHMHM School
Dear Dr. Mallik,
Thank you for your response.
The question was not for any mismanagement of nationalised banks.
It is for the continuous LOOT of the money of the direct and indirect taxpayers by some cheaters (in any name) every year at regular manner with assistance of our GREAT politicians.
Total NPA is INR 750000 CRORE!
And Govt. Write Off INR 250000 Crore for this year!
Can de - nationalization of banks can stop that LOOT?
I can only call German traditions.
The system of large banks is not interested in control by the state because it fears restrictions on its freedom and argues that there is a well-functioning mutual controlling system in the money economy. The latter is doubtful. Take, for example, the major banking crisis in 2007, which emanated from major American banks as a result of a speculative inflated real estate market, which led to the collapse of several major banks in Germany, which only the state then saved. The bank debts were paid by the taxpayer, some banks were nationalized, but most simply continued.
This is why better supervision and control of the major banks is important. The only financial institutions that acted responsibly were the small municipal financial institutions. The citizens learned that although their service is a little more expensive, they can be trusted better than the big banks.
The best survival of the state dominates the banking sector
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