16. Role of Public Sector Banks
As ONE LOOKS at the various patterns and models of development that the low-income developing economies have been experimenting with over the last two decades, one finds that almost in each and every case the need for developing financial institutions, particularly commercial banks, and the role that they can play in supplementing the efforts of other institutions to bring about a social and economic transformation of the economy have been duly emphasised. In the development strategy that we are currently pursuing we have also done so. What is it then that distinguishes our approach from the approach usually followed elsewhere? To my mind the main distinction lies in the fact that whereas the traditional approach emphasises the importance of the banking industry in terms of its contribution as a 'facilitating service industry', in our way of thinking its real significance emanates from the fact that it can and should be used as an important engine of growth and social change, and herein lies a world of difference. We might appear to be saying the same things but frankly that is not so. Also the difference is not in terms of degrees of emphasis; it is much more basic than that.
The usual line is that banks act as an important repository of community's savings. They collect saving from those in the community who voluntarily part with their surpluses for a monetary reward. In turn, the banks use these funds for providing support to those elements of the productive apparatus of the community who are prepared to come forward to them and are willing to pay the price asked for by them for the use of funds.
Banks should use their resources, so runs the usual reasoning, in such a manner that what they collect as charges for loaning out of funds is somewhat higher than what it costs them to raise and administer those funds. The pricing policy for the use of funds would possibly in its turn ensure an efficient utilisation of funds by the community and thus the banks would be performing an useful allocative service to the community by funneling funds into relatively more efficient channels. An inevitable corollary of this type of reasoning would appear to be that it would be in the best interests of the community at large and of the banks in particular, if the latter keep on following the footsteps of development.