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Published by sneha gupta

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Published by: sneha gupta on Sep 21, 2009
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>>>>>>>>> Home> Liberation >Year_2001>January> Bank privatisation is against people's interest
Bank privatisation is against people'sinterest
Chandra BhanThe country witnessed a total and successful all-India strike by the employees of all banks in public andprivate sectors, foreign banks, Regional Rural Banks (RRBs) and cooperative banks on November 15,2000. The United Forum of Bank Unions issued the call on the following demands:a) Against privatisation of Public Sector Banks (PSBs) by way of dilution of govt. equity to 33%;b) Against the introduction of Voluntary Retirement Scheme (VRS) in public sector banks;c) Against the contemplated reduction in retirement age from 60 to 58.These contemplated measures of the Vajpayee Government, on the recommendations on theNarasimham Committee, are against the interests of the nation, national economy, banking industry andalso bank employees. Bringing down the government equity below 51% is privatisation of banks. This willbe an act of regression and not reform measure, as it will put the country’s wheels backward.On 19 July, 1969, 14 major banks were nationalised followed by 6 more on 15 April, 1980. In between,196 RRBs were established in the country in the public sector. This apart, there are public sector bankinginstitutions like IDBI, NABARD, SIDBI etc. Today, about 80% of banking activities are in public sector.Nationalisation of banks was necessitated when the nation, after independence, needed massiveinvestments in agriculture and industry so as to make the country self-reliant in food and industry,particularly in core sectors like electricity and steel etc. Food was scarce in the late ’50s and ’60s and itled to food riots. Private sector banks never cared for the country but were concerned only aboutexpansion of their own industrial empires with the people’s savings mobilised in banks as deposits. If India is today self-sufficient in food, the credit must go to the public sector banks, which have gone to thevillages and extended credit to peasants and other sections of the rural poor. But for the enormousexpansion of PSBs and the massive credit delivery to the rural sectors, poorer sections, export sector andother priority segments, the country could not have come to its present position.The real question with regard to the banks is not the extent of ownership of equity but control over thecapital resources. In fact, in banking industry, paid-up capital plays a very nominal role as will be evidentfrom the following facts:
 As on 31 March, 2000 (In crores)Name of the bankPaid-up capitalDeposits
State bank of India526.30196821.00Bank of Baroda294.3251308.00Oriental bank ofCommerce192.5322095.21Central Bank of India1805.4535871.71UCO Bank2264.5218359.95
In a country like India, where vast masses are illiterate, where banking habits are extremely slow andsluggish, safety of people’s savings in the form of deposits has to be the prime concern of the financialauthorities. The government control over the capital alone can guarantee the safety of people’s savingsagainst private ownership of equity. During the last few years, when some PSBs reported losses for reasons beyond their control, deposit growth rate signifying people’s confidence was better than profit-making private banks.Once the banks are privatised, the enormous resources mobilised in banks out of people’s savings wouldnot be available to the government for developmental purposes.Privatisation of banks is aimed at diverting people’s attention from the staggering and ever-increasingportfolio of bad and doubtful debts, euphemistically called Non-Performing Assets (NPAs), which stand atmore than Rs.1,00,000 crore if one adds the overdue interest on all ‘bad loans’ and ‘write-offs’ from theoperating profits.Bank privatisation is aimed at providing a cover to the errant banks and defaulters and divert people’sattention from this key issue, which is solely responsible for the present ill health of banks.It is argued that for meeting the requirement of Capital Adequacy Ratio (CAR), privatisation of banks isinescapable. This is not true. Once ‘bad loans’ are recovered for which drastic and stringent steps —
legal, moral and penal are needed and banks are allowed to run by professionals free frombureaucratic control and political interference, nationalised banks shall be earning handsome profits. It isthe Government’s inaction in recovering bad loans that is prime reason for the banks’ problems of CAR.The latest scheme of the RBI for recovery of big loans through compromise proposals is a bonanza to theloan defaulters.It is also argued that even though the government equity will be reduced to 33%, the public sector character of the nationalised banks will be retained because the government will appoint chairmen/MDs of the banks. Out of 15 directors, 10 will be from private sector. A chairman of the bank, though appointedby the government, shall be bound by the Board of Directors where private sector will be inunchallengeable majority. Hence the talk of retaining the public sector character of the banks is withoutany basis. Once the banks are privatised, everything will be private.Once the nationalised banks are handed over to the private sector, credit flows to the rural sector andagriculture shall be steadily choked. Similarly, small, mini and cottage industries, self-employed persons,like vendors, cobbles, rickshaw-pullers shall be thrown out of the credit delivery system.The recent bank failures in South-East Asia, including Japan, could hardly affect India or its bankingsystem. The reasons for this contrasting situation are not difficult to understand. While India had a strongpublic sector banking system, more or less well regulated, these Asian Tigers were having private banks,with hardly any regulation and run on the prescriptions of World Bank and IMF. While many banks closeddown, currencies collapsed, thousands lost their jobs, economy got the rudest shock, resulting, ultimately,in political instability. Taking advantage of this chaos and anarchy, foreign capital took over many banksand the financial system.Bank privatisation is hence against people’s interest.>>>>>>>>> Home> Liberation >Year_2001>January> Bank privatisation is against people's interest >>>>>>>>> Home> Liberation >Year_2001>February > More on bank privatisation
More on bank privatisation
Banks are in news these days for one reason or the other. One common refrain in such ‘news stories’being that banks are sick, not viable and they need reforms. Meanwhile, the government has announcedits decision to reduce its stakes in public sector banks to 33%. Are the banks really sick? The answer isNo. Public sector banks are making profits. Even the loss-making banks like UCO bank have turned thecorner this year. Then why this outcry?It is not the ordinary citizen of India who is crying himself/herself hoarse about public sector banking.Ordinary men and women are happy with the banks, farmers are happy with the banks, and smallindustrialists do want the banks to reach out to them more and more. In all these sectors the recoverypercentage is very high. (As per a RBI report in 1999, the recovery of small and medium loans is as highas 67%.) Compared to 1950s and 1960s the farmers are getting more credit. At least 20% of Indianfarmers have been released from usury and the clutches of jotedars and moneylenders. It is these peoplewho constitute crores and crores of Indian people and they do not complain about the banks. True, bankshave their share of problems and people do have some criticism about the customer service but theydefinitely do not want to see the public sector banks wound up.It is the industrialists represented in CII, FICCI and other chambers who complain about public sector banks. It is they who say that Indian pubic sector banks are not up to the mark in customer service, theyare not giving adequate credit, and that they have more procedures and systems than required. Thesepeople also want their money transferred in seconds from stock exchange to stock exchange. Strangelyenough, these are the very same people who do not want to pay back the bank loans. They search everynook and corner of law books and statutes to search for the remotest possible way to dodge repayment of loans. They have succeeded in finding such loopholes in the Banking Companies Act.
The secrecy clause
There is a secrecy clause in the Actwhich empowers a banking company toconceal the amounts set aside by it asbad loans. The bad loans are thosewhich could not be repaid due to thevagaries of business cycle or due tonatural calamities etc. There is no pointin pursuing the recovery of such loans,as such borrowers do not have anymeans to repay. Such debts are writtenoff record books and recorded asgeneral expenditure and banks neednot publish these. This clause has beenexploited to the hilt by the Indianindustrial and business class to conceal their loot of bank funds.For this modus operandi to become clearer, we have to go a bit deeper into the structure andadministration of banks. When banks were nationalised in 1969, a National Banking Corporation and aseparate banking service were proposed to develop the necessary human resources to administer thebanks. Instead the government chose not to disturb the old bureaucratic setup of these banks. Whenthese banks were under private management, their relatives and cronies, specially trained to serve their business houses, were in the top echelons of all these banks. Besides the board of management of eachbank was to be reconstituted with directors drawn from the public. ‘Drawn from pubic’ was a euphemismbecause only politicians, industrialists and other businessmen found their entry into the board under thepretext of ‘social service’. Thus it was found that persons from industrial houses like Tatas, Birlas, andSinghanias etc. had enough clout to serve on the boards of various public sector banks many times over.What happens when these capitalists sit on the board of various public sector banks? They found aningenious way to siphon off public money. That was done in two ways. One to promote loyal officers tokey positions in banks and shelter them so that they could sanction any amount of loan. Second, tosiphon off money through loan write-offs.
If politicians and industrialists can loot bank money, why notbureaucrats?
This sounds logical. Isn’t it? But for a government official, say a secretary, or a manager of a PSU, or even a minister holding office, loans cannot to be doled out just like that. They have to take permissionfirst to raise credit from outside sources. Hence, a novel way was found in all the banks. Gold card andsilver card schemes were introduced after 1980. These cards were handed out to top bureaucrats. Theholders of these cards can raise loans in any branch of these banks in India up to a certain limit. Thesewill be accounted and monitored centrally at the head office. Here lies the catch. These loans are not tobe monitored by the branch managers. What happens to these loans, who repays them, and ultimately,who waives these repayments are all secret. They could be submitted only to the respective boards.Let us cite one example. Smt.Basawarajeswari, who owns hundreds of acres of benami land in Raichur district of Karnataka, was a central minister. She raised a loan of Rs. one lakh and did not repay. After her stint as minister was over, she submitted that she had no means to repay. Hence the Canara Bankboard waived her loan. At that time, the workman director Mr.Vasant Rai, President of Canara BankEmployees Union, recorded his dissent.
How much was the loot?
1. Harshad Mehta — Rs.812 crore2. Hindustan Photo Films — Rs. 395 crore3. Mangalore Chemicals and Fertilisers - Rs. 165 crore4. JK Synthetics — Rs. 87 crore5. Hyderabad Allwyn — Rs. 85 crore6. HMT — Rs. 77 crore
Who opposednationalisation in 1969?
The Jan Sangh, the BJP’s earlier avatar, in its 1971 electionmanifesto, opposed nationalisationof banks and promised to de-nationalise them if came to power.Atal Behari Vajpayee, who was thepresident of the Jan Sangh then,was in the forefront of opposition tobank nationalisation. Now that hehas become the Prime Minister, the1971 promise has been fulfilled.

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