What Nirmala Sitharaman said on bank privatisation that drew criticism from civil society group

Finance Minister Nirmala Sitharaman’s recent remarks questioning the outcomes of bank nationalisation have drawn a sharp rebuttal from bank unions and civil society groups, which cautioned the government against privatising public sector banks (PSBs).

In a letter to the finance minister, the Kolkata-based Bank Bachao Desh Bachao Manch (BBDBM) said that nationalisation had transformed India’s financial system by extending institutional credit to rural and semi-urban areas that private banks had largely neglected before 1969.

“The economic progress of the country since 1969 can be single-handedly attributed to public sector banks, which remain the backbone of India’s financial architecture,” the forum said in its letter signed by joint convenors Biswaranjan Ray and Soumya Datta.

The group contended that PSBs continue to dominate India’s banking system, accounting for over 60% of deposits and advances, and operating more than 90% of rural branches that serve farmers, low-income households and small businesses.

BBDBM said PSBs have driven financial inclusion by opening over 53.1 crore Jan Dhan accounts, with more than 31 crore in rural and semi-urban areas, and 55% belonging to women.

The letter also credited PSBs with leading government-backed schemes such as the Pradhan Mantri Jan Dhan Yojana, Jeevan Jyoti Bima Yojana (PMJJBY), Suraksha Bima Yojana (PMSBY), Mudra and PM SVANidhi.

The forum alleged that, even as PSBs have advanced inclusion and small-credit programmes, large corporate borrowers have benefited from massive write-offs.

Between FY16 and FY25, PSBs wrote off ₹12.08 lakh crore, it said, adding that total write-offs across scheduled commercial banks exceeded ₹16.35 lakh crore.

It accused the government of trying to “portray nationalisation as a failure so that public sector banks may ultimately be transferred to a few favoured business conglomerates.”

United Forum of Bank Unions (UFBU), representing nine trade unions of officers and workmen across all banks, said 90% of accounts under Pradhan Mantri Jan Dhan Yojana were opened by PSBs.

Priority lending and social banking are almost entirely driven by PSBs, and rural penetration and financial literacy are mostly powered by government-owned banks, it said in a statement.

"If Indian banking today stands strong, it is because of resilience built under public ownership...no country in the world has achieved universal banking through privatising banks. To say privatization will still ensure inclusion is not supported by any evidence," it said.

The UFBU demanded a categorical assurance from the Centre that no public sector bank will be privatised and strengthening of PSBs through capital support, technological modernisation and transparent governance, without privatisation.

Besides, it requested for public consultation and parliamentary debate before any decision impacting the rights of depositors, employees and common citizens.

What Nirmala Sitharaman said

The reaction followed Sitharaman’s comments at the Diamond Jubilee Valedictory Lecture of the Delhi School of Economics earlier this week, where she said that the 1969 bank nationalisation had “not yielded the desired results” in terms of financial inclusion.

While acknowledging that nationalisation helped push priority sector lending and government programmes, the finance minister argued that government control made PSBs “unprofessional”.

“After we professionalised the banks, those objectives are still being beautifully achieved,” she said, adding that fears of losing inclusion objectives through privatisation were “incorrect.”

Sitharaman said misuse of PSBs in the past led to balance sheet stress and the “twin balance sheet problem” seen in 2012–13.

It took nearly six years under the Modi government to repair the system, she noted, adding that Indian banks now stand out globally in terms of asset quality, credit growth and financial inclusion.

She emphasised that when banks are allowed to function professionally and the decisions are board-driven, “every objective of the national interest and banking interest will be served.”

The government has, in recent years, advanced its banking sector reform agenda through consolidation and selective privatisation. In 2019, it sold its controlling 51% stake in IDBI Bank to Life Insurance Corporation (LIC), and a strategic sale process is underway for their combined 60.72% stake.

In August this year, SEBI approved the reclassification of LIC as a public shareholder in IDBI Bank, paving the way for divestment. The government has also merged several PSBs since 2017, reducing their number from 27 to 12.