Tis a lesson you should heed:/Try, try, try again./If at first you don’t succeed,/Try, try, try again—so goes the inspirational poem. Government after government has followed this while dealing with public sector banks (PSBs). Except that there is little poetic about the exercise, many versions of which have already cost the taxpayers lakhs of crores of rupees; they will continue to pay for politicians and policymakers who don’t want to lose control over PSBs. And the Vijay Mallyas and Nirav Modis will be pampered at the expense of the public exchequer.

The numbers are frightening. In the last 11 years, the Congress-led and the Bharatiya Janata Party governments have spent—“wasted” is a more appropriate word—about Rs 2.6 lakh crore to keep PSBs running. This is about the money the country spent on the defence capital expenditure in the last three years. Worse, about Rs 1.3 lakh crore will be spent in the next two financial years.

To what avail? According to RBI data, the return on equity (ROE) of PSBs stood at -2.8% in 2016-17, in comparison with almost 12% ROE of private banks. Non-performing assets or NPAs in PSBs rose from 5.43% (Rs 278,466 crore) in March 2015 to 13.69% (Rs 733,137 crore) in June 2017.

Meanwhile, the government has been doing everything to revive PSBs, except even looking at the solitary cure—privatisation. Charades keep happening. In August 2015, Finance Minister Arun Jaitley launched a seven-pronged plan, Indradhanush. The seven components pertained to appointments, a Banks Board of Bureau, capitalisation, de-stressing, empowerment, framework of accountability, and governance reforms. In February 2017, there were reports that the government was planning to introduce Indradhanush 2.0, a comprehensive recapitalisation programme to make them fully comply with the global capital adequacy norms, Basel-III. All this sounded impressive—and has proved to be futile. As we mentioned, NPAs kept rising, and crooks continued to cheat PSBs.

The reason nothing other than privatisation can revive PSBs is that they are owned by the state; and in practical terms state ownership means control of politicians, which is certainly not the tribe famous for competence and honesty in our country. Considerations other than business are taken into account, leading to cronyism, corruption, unaccountability, “loan melas”, evergreening, ballooning NPAs, and an assortment of other afflictions. It is an open secret: from top government functionaries and prominent economists to the lay investor, everybody knows that PSBs are in a mess primarily because politicians own them. For our politicians are cursed with the anti-Midas touch: anything precious or good they touch turns into trash. This is also evident from Dalal Street: the combined market capitalisation of all PSBs is considerably less than that of a single private lender, HDFC Bank.

Which is not surprising because bank after government-run bank has embellished its books, given a long rope to wilful defaulters, let loans be evergreened, and blindly followed politicians’ orders. Nirav Modi is just one of the more conspicuous abominations of public sector banking.

It needs to be mentioned here that there are people in the system who are aware of the fact that privatisation is the only solution. In the wake of the Nirav Modi scandal, Chief Economic Advisor Arvind Subramanian has called for increasing privatisation in the banking sector. In May last year, RBI Deputy Governor Viral Acharya had also favoured reprivatisation of some PSBs.

Just before Narendra Modi assumed office, an RBI committee under former Axis Bank chairman P.J. Nayak made a case for the denationalisation of PSBs. “If the government stake in these banks were to reduce to less than 50%, together with certain other executive measures, all these external constraints would disappear,” the report said. “This would be a beneficial trade-off for the government because it would continue to be the dominant shareholder and, without its control in banks diminishing, it would create the conditions for its banks to compete more successfully.” An RBI committee under M. Narasimhan in 1998 had recommended bank privatisation.

The most disheartening fact is that decision makers in the government are not seriously thinking about the real cure: privatisation of PSBs. Which means that those who matter may come up with some other phony remedy—Indradhanush 3.0, a revamped Banks Board of Bureau, merger of PSBs. It’s like looking for some “Ayurvedic” or easy way to get rid of obesity; several such “herbal” treatments are advertised on television. They promise that you can get the physique of a model without going through the regimen he or she has to undergo.

An article that begins with a poetic note should end on another. Paraphrasing Bob Dylan, one may sing: “How many scams will it take till the government knows/That too many taxpayers have been swindled?”

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