Government Continues to Weaken Public Sector Banks

C P Krishnan

FROM the preliminary MoU signed in eleven banks, it is clear that further dilution of government holding in public sector banks is the main intention of the government of India. It is common knowledge that any dilution of the government holding in the PSBs is detrimental to the interest of the common man and is diametrically opposite to the very aim of the nationalisation. The objective of nationalisation is that “Banking system has to subserve national priorities and objectives such as rapid growth in agriculture, small industries, exports, raising employment levels, encouragement of new entrepreneurs, development of backward areas”. Therefore it is incumbent on the part of the unions and associations to fight against any further disinvestment.


The BJP led central government has got no commitment to the cause of the nationalisation of banking industry. In fact the earlier incarnation of the BJP, Jan Sangh was opposed to the very concept of nationalisation of the banking industry. In December 2000, a bill was introduced in the Lok Sabha by the then finance minister Yashwant Sinha to reduce the government holding in PSBs to 33 percent by the then BJP led NDA government. Only the united serious struggle including two days’ strike by all bank employees and officers all over the country at the call of UFBU on November 15, 2000 and December 21, 2000 supported by the central trade unions and the democratic forces thwarted such malicious move of the government.

Again in the last budget of 2016-17, there was a move to reduce the government holding in IDBI from above 80 percent to less than 51 percent by the present BJP government and thus public sector IDBI was sought to be privatised. The intense struggle of the IDBI officers and employees supported by the trade union movement of the country has so far prevented such a disastrous move from getting implemented.

UFBU has been consistent in thoroughly opposing any move of dilution of government holding.  Through the turnaround plan, there is every possibility for an attempt to blunt our struggle against the disinvestment plan of the government.


The revised Prompt Corrective Action (PCA) framework for banks has been released by RBI on April 13, 2017 which is effective from April 1, 2017.  This PCA prescribes areas such as capital, asset quality, profitability and leverage, their indicators and Risk thresholds.  According to the revised PCA, breach of “Risk Threshold 3” by a bank would identify a bank as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up etc.  Additionally in the case of a default on the part of a bank in meeting the obligations to its depositors, possible resolution processes may be resorted to without reference to the PCA matrix.

RBI, in order to show that it is neutral, says that the PCA framework would apply without exception to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries. But people are quite aware how the RBI guidelines with regard to priority sector lending, rural branches, infrastructure lending etc are observed more in breach by the private sector banks both inland and foreign.  Therefore it can be safely concluded that this PCA framework is mainly for the PSBs.

Further there is an omnibus clause in the RBI guidelines dated April 13, 2017 that “the PCA framework does not preclude the RBI from taking any other action as it deems fit in addition to the corrective actions prescribed in the framework”.  Then naturally a question arises in the minds of the common man – “what for is this PCA framework?”

Already the plans are ready for amalgamating or even winding up public sector banks. Then, it is discernable as to why this exercise of MoU is undertaken.

Bank employees and officers already have rich experience how PSBs were treated during the previous BJP led NDA government. The Reserve Bank of India, in consultation with the government of India, established a working group in February 1999 under the Chairmanship of MS Verma to suggest measures for the revival of weak public sector banks.

The working group, in its report submitted in October 1999, suggested a combination of seven parameters covering the three major areas of solvency, earnings capacity and profitability for identifying bank weakness. The parameters under solvency included the capital adequacy ratio and the coverage ratio, those under earnings capacity included return on assets and net interest margin, whereas the parameters under profitability included ratios of operating profit to average working funds, cost to income and staff cost to net interest income plus all other incomes.

Verma recommended closure of three PSBs

According to the Verma committee report, all the PSBs except two banks did not comply with some efficiency parameters or the other and therefore not worth existence; the malady had been deep in the case of three banks viz. Indian Bank, UCO Bank and United Bank of India as they were trapped in vicious circle of declining capability to attract good business.  The committee went on to suggest various options like reduction of staff, wage cut, closure of branches etc. And if they were not effective, the Verma Committee had no hesitation to recommend for the closure of these three public sector banks.

It is history that only the resolute, determined and united fight by the employees and officers of these three banks firmly supported by UFBU and other democratic forces dumped the Verma Committee recommendations to the dust bin. In the past nearly 18 years subsequent to Verma committee report, all the PSBs including these three banks have been rendering excellent service to the common people and have been instrumental in improving the standard of life of crores of people.

A situation akin to the situation of 1999 has presently arisen. Eleven banks, where the preliminary MoU has been signed, are not the only banks that are facing disinvestment.  Even other banks which are supposed to be strong also face a similar situation.  Business Standard dated April 17 carries a news item that the finance ministry will push at least six public sector banks including State Bank of India, Bank of Baroda and Punjab National Bank to hit markets to raise funds and ease the pressure on the exchequer of pumping in capital as per the Indradhanush plan.

Thus the idea of the government of India is that it wants to push the PSBs to the brink with regard to government shareholding so that privatisation of PSBs can be facilitated.


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