Nationalisation,Corporatisation,Disinvestment and Privatisation: The Four Stages of Engagement with the Markets in the Context of Financial Inclusion

Abstract

The article looks at four phases of state engagement in financial inclusion. The first phase of involvement is classified as nationalisation, where the state takes control of both the strategic and operational control of a significant part of the market. The second phase is where the state can test the viability by retaining control but distinguishing between the departmental approach and a special purpose vehicle, which works on market principles. The third phase comes when the state is convinced that the market principles operate and therefore a part of the pie could be occupied by the market players, and the final phase is where the state can theoretically operate through policy and regulation without active participation in the market. The article looks at the evolution of the Indian banking sector through these four phases and concludes that we have passed the nationalisation phase. The state-owned Regional Rural Banks and the entire cooperative and community-owned structures are in the corporatisation phase that needs recapitalisation backstopping from time to time. The state-owned commercial banks have reached the disinvestment phase, and commercial banking in India, including the universal banks and the small finance banks, is in the privatisation phase.

JEL Codes: D63, G18, G20, G21, G28, L32, L38