The recommendation of the P.J. Nayak Committee that the government transfer its control of banks to a bank investment company as a holding company, throw out lock, stock and barrel the Nationalisation Act, and bring all public sector banks under the new Companies Act to strengthen governance is extremely radical. It spells the end of the era of nationalised banks in the way that we know it.
At one level this would not be a bad thing because, after 45 years, the original raison d’être for nationalising banks has lost much of its urgency, though financial inclusion is still a distant goal and the rural poor are still in the grip of moneylenders. This is not to belittle the tremendous achievements of bank nationalisation, but it is necessary to bring in governance in bank boards and this is what the Nayak Committee was formed to look into.
Banks have to be freed from the stranglehold of the government and other political authorities who have tended to use nationalised banks as their fiefdoms. But nationalised banks are still the most trusted compared to private banks. The private sector suffers from an enormous trust-deficit, and it was one of the reasons why banks were nationalised. So, a via media would have to be found, if and when the Nayak Committee recommendations are accepted, to retain the good and reject the bad in the existing nationalised banking system.
