The Most Unkindest Cut of All

C P Krishnan

CAN any Indian citizen imagine in his wildest dream that the central government will contemplate to liquidate the State Bank of India, the largest public sector bank in our country, doing yeomen service to the common man, serving more than 25 crore account holders and commanding one third of the total banking business?  Can anyone think that the government at the centre will attempt to close down Life Insurance Corporation of India, the largest public sector insurance company with no match in the private sector and which has doubled its contribution to the 12th Five Year Plan compared to that of 11th Five Year Plan from Rs 7,04,151 crores to Rs 14,23,055 crores? Yes.  What no one imagined is likely to become reality, if left unchecked.

Cabinet clearS draconian bill

On June 14, 2017, “The Cabinet, chaired by Prime Minister Narendra Modi, approved the proposal to introduce the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017. The bill will pave the way for setting up of Financial Resolution Corporation to deal with the bankruptcy of the banks, insurance companies and financial entities” according to the media reports. This is the most dangerous attack on the public sector financial institutions.

Under the FRDI, a “Resolution Corporation” would be established. The general direction and management of the affairs and business of the corporation shall vest in the board, which shall consist of chairperson, one each representing finance ministry, RBI, SEBI, IRDA, PFRDA, three whole time members appointed by the central government and two independent members to be appointed by the central government.

BOARD TO HAVE SWEEPING POWERS

The board will have sweeping powers to order amalgamation, merger, liquidation and acquisition of any bank, including the SBI and other nationalised banks, regional rural banks, co-operative banks and payment banks, any insurance company including the LIC and other nationalised general insurance companies if, in its opinion and judgement, the concerned institution (bank or insurance company) has got “imminent” or “critical” risk to its viability. The corporation will also be empowered to hand over any such institution to another entity, public or private. It has been authorised to order discontinuation of service of the employees or transfer of their employment or reduction of their remuneration upon such “Resolution”, ie, amalgamation, merger, transfer of ownership or liquidation.

FRDI envisages closure of the “Deposit Insurance and Credit Guarantee Corporation” (DICGC, in short) established in 1961, which has so far been an insurance cover for the savings of the depositors.

The draconian nature of the bill will have deep negative impact on the safety and security of people’s deposits and the very job security of the employees and officers.

On March 15, 2016 a committee was set up under the chairmanship of Ajay Tyagi, additional secretary, department of economic affairs, ministry of finance, to draft and submit the Bill. The committee submitted its report and based on it, the draft FRDI Bill was drawn up.

It is to be reiterated that the public sector financial institutions have been created to serve the ordinary masses besides marginalised and under-privileged sections of the people and not for earning huge profit at the cost of ordinary masses.

Out of the total Non-Performing Assets (NPAs), 88.4 per cent is the creation of the large borrowers with the loan exposure of Rs 5 crores and above.  On top of it, 12 large borrowers constitute 25 per cent of the NPAs.

WHY 100 PER CENT PROVISION?

According to the Economic Times dated June 26, 2017, RBI told banks to set aside at least 50 per cent of the loan amount as likely losses for all cases referred to the insolvency process; the regulator also said that provisioning should be 100 per cent for those cases that don’t get resolved in the initial mandatory period for loan restructuring and instead are forced into liquidation. 

It is now clear how ‘efficiently’ the law of Insolvency and Bankruptcy Code (IBC), 2016 would be utilised.  If banks have to make 50 per cent or 100 per cent provision, then what is the use of this law?

The present BJP government has absolutely no political will to recover the NPAs from the corporates. Hence it attempts to show the performance of the PSBs in poor light and then liquidate them through the new bill cleared by the union cabinet on June 14.

56 RRBs spread over 600 districts with around 23,000 branches have been rendering excellent service to the rural people by lending almost 80 per cent of their total advances to the poor and marginalised. Further there is a demand from the unions/associations to strengthen RRBs by providing adequate man power and improving their infra-structure.  Despite poor support from the government, only four RRBs incur loss.  That may be cited as an excuse for the government to wind them up.

The co-operative institutions which have been extending real service to the common man, have been weakened to some extent as 370 central co-operative banks with around 14,000 branches and 93,000 primary agriculture co-operative societies were kept away from the note-exchange exercise during demonetisation period.  The losses incurred by these institutions due to farm loan waiver announced by the successive governments were not fully reimbursed by them. This has further weakened their financial stability. These institutions which were exempted from payment of income tax are forced to pay the same through a change of law made about a decade ago. Due to these faulty policies, some of the co-operative institutions suffer losses for some period. The same may be attributed as their inefficiency and quoted as the reason for liquidating them.

Despite stiff competition posed by the private insurers, the public sector LIC stands number one in terms of market share and service in the life insurance sector with no competitor anywhere near the LIC.  The four public sector non-life insurance companies continue their dominant position with regard to market share and service to the common man in spite of unethical competition by the private insurance companies imposed due to the defective policy of the government.  There cannot be any reason for their closure even remotely.

In this backdrop, it is incomprehensible why such a bill is attempted to be brought.  The move of the government lacks any logic or reason.  This is yet another deliberate attempt to serve the corporates by encouraging more and more private banks in the name of small banks or payment banks and universal banks and keeping our country’s door wide open for foreign banks.

Bank strike

This move of the central government deserves strong condemnation from all quarters. It is incumbent on the part of all the central trade unions and sector wise unions and democratic forces to resist the move of the government to close down public sector financial institutions and defeat the same.  All the patriotic minded members of the parliament would oppose the bill, when introduced in the parliament.

Bank employees are determined to oppose this sinister move of the government at the centre tooth and nail. Ten lakh bank employees and officers under the banner of UFBU will observe a day’s strike on August 22, 2017 against the so-called banking sector reforms and particularly against this FRDI bill. There will also be a massive dharna with the participation of more than a lakh of bank employees and officers before parliament in Delhi on September 15, 2017 followed by two days’ country-wide strike in October/November 2017, if the government remains obstinate.

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