War against People: Targeting People’s Hard Earned Savings

Nilotpal Basu

THE rhetoric of ‘crusade against corruption’ now stands exposed.  Prime Minister Modi’s lieutenant Amit Shah admitted it as much.  The Rs 15 lakh bonanza from the black money stashed in foreign bank accounts will never reach.  Shah accepted that this was unadulterated jumla. From demonetisation to digitalisation and the GST; these dramatic initiatives were pitched as grand narrative against corruption.  But this cleansing operation is empty hoax. All the extinguished currency has safely returned to the financial system.  Counterfeits are microscopically small. And, no ‘big fish’ is behind bars.  

If these were merely inept cluelessness, the results would be considered unacceptably disastrous!  The peasantry suffered with the crash of their crop prices with cash disappearing. Under the joint blitz of demonetisation and GST, the tragic consequences have affected the unorganised/informal sectors disproportionately; leading to lakhs of job loss and eventually leaving the entire economy traumatised.  

The inescapable conclusion is, the entire exercise was actually a smokescreen.  It was to deflect people’s attention   from the most horrific reality of our banking system; resulting from crony capitalism.  Tax waivers and non-recovery has been the most tell-tale sign of cronyism in Indian economy resulting in unsustainable levels of inequality and reverse transfer of resources. The unprecedented accumulation of non-performing assets in our banking system should have been the most urgent priority, if Modi’s slogan, ‘Na khaunga, na khane doonga’ was honest; but it was not to be.

Terrible Mess

The disaster in the banking system becomes obvious from this table:


Loan Write-Off in 10 Years


























**Half year. Source: RBI *Source: ICRA


Far from leashing the cumulative magnitude of loan waivers, the total write-offs during the last three and a half years of Modi government have been Rs 2, 39,082 crores. It is also clear, that much that PM has abused previous government for whatever the country suffered; it is outstripped by his regime.

There is no compassion in the roadmap that the government is proposing; most aggressive neo-liberal pro-corporate and anti-people steps that one can think of! The government seems to have done a copy-paste of the G-20 Financial Stability Board recommendation  The pernicious nature of the government’s course was clearly articulated by the CPI (M) CC resolution in January 2017: “India, under this BJP government, eager to implement neoliberal reforms aggressively, had, in order to comply with the G20 FSB recommendations, set up through the Finance Ministry a committee to draft The Financial Resolution and Deposit Insurance Corporation Bill 2016. This Committee had submitted its report in September 2016. Amongst others this Bill envisages the setting up of a Financial Regulations and Deposit Insurance Corporation with the objective of contributing to financial stability. Its priority is not the protection of consumers or all public funds. In case a bank reaches a state of collapse this FRDIC will have the power amongst others to exercise any one of the three measures to protect the bank. These are – sale to any other financial firm, including foreign corporates; the incorporation of a bridge institution (merger of banks as is currently being proposed in India) or initiating a ‘bail in’ process.

“If this comes into effect as law then the RBI’s mandate would shift from supervision, regulation and monetary policy to ensuring financial stability in the country. This would mean in fact that the interests of the ordinary depositors in the banks would be sacrificed in favour of protecting, both the banks facing collapse and the corporates who have heavily borrowed from the banks.

“In the FSB proposal this resolution authority will have the power to ensure that a failing bank can be recapitalized with depositors’ money and material without the depositor's consent.

“The Deposit Insurance and Credit Guarantee Corporation in India under this regime will insure every individual depositor to a maximum of Rs. 1 lakh in the event of a bank collapse. The individual depositor may have any amount above Rs. 1 lakh in his or her account but if the bank collapses all that he/she would receive is Rs. 1 lakh and having no legal remedy to recover the rest of the amount.”



Arun Jaitley in his budget speech of 2016-17 observed: “The Bill relating to resolution of financial firms will be introduced in the current budget session of parliament.  This will contribute to stability and resilience of our financial system.  It will also protect the consumers of various financial institutions. Together with the Insolvency and Bankruptcy Code, a resolution mechanism for financial firms will ensure comprehensiveness of the resolution system in our economy”. Immediately, a ministry of finance committee was set-up which submitted a report and a draft code on September 28, 2016.  Without brooking any delay, it called for public comments on the report and the draft Bill `The Financial Resolution and Deposit Insurance (FRDI), by October 14, 2016.   On June 14, 2017, the cabinet cleared the bill for introduction in the parliament and was eventually placed in Lok Sabha on August 10, penultimate day of the monsoon session. Instead of referring the bill to the parliamentary standing committee on finance, it was referred to a joint select committee in the din that ensued; clearly the intention was not to have a vote on the government’s bill, but that on what comes out of the select committee, as the apprehension of losing on numbers in Rajya Sabha was weighing on the government’s managers.  

With a truncated winter session, it seems that the government will try to push this pernicious legislation now itself.  



The bill provides for transferring the assets of the firm (meaning, PSBs and other financial companies) which will be considered as insolvent or potentially insolvent, creating a bridge service provider (which can be a private sector entity),  bail in, merger or amalgamation of the firm, acquisition and liquidation (subject to approval by National Company Law of Tribunal).  

The bill provides for the establishment of an all powerful ‘resolution corporation’ (RC). It will act as the principal agency to provide deposit insurance, classified banks based on risk to viability, provide for resolution and liquidation of a specified service provider (banks and other financial entities) and act as administrator for those entities considered ‘critical’.  

The board of the RC will be comprised of eleven members of whom seven will be direct appointees of the finance ministry.  They will have sweeping powers to order amalgamation, merger, liquidation, acquisition of any bank including the behemoth SBI and other PSBs, regional rural banks, cooperative banks, payment banks, any insurance company including LIC and other public sector insurance companies and any other non-banking financial institution, if they are construed as risk-prone.  By virtue of the powers invested with RC, they will make most of the existing financial regulators like RBI, SEBI, IRDA and PFRDA.  The sovereign guarantee to the depositors in public sector financial institutions is ensured by Deposit Insurance and Credit Guarantee Corporation through an Act of parliament.

It is obvious, that the RC can also unilaterally change the service conditions of the manpower engaged in the financial sector on the plea that it is imperative to overcome insolvency and avert bankruptcy.  Of course, there is very little to suggest that there will be any serious drive to recover corporate debt which has created this disastrous situation.    



The government’s claim that the Insolvency and Bankruptcy Code which has created a tribunal to which potentially insolvent and bankrupt entities who have defaulted on their loans are referred, is in itself, a harsh penalty on these defaulting entities.  However, the experience is quite the contrary.  

The first case dealt with by the tribunal where the creditors (PSBs) were allowed to draw only Rs 54 crores from M/s Synergies – Dooray Automotive’s total dues of Rs 900 crores. Even out of that, the debtor would only have to pay Rs 20 crores affront, because rest would go to distressed-debt investors.  Alarming is an understatement to describe the possibility of retrieving the unpaid debt through this route.

With such disastrous outcome, one can only hold breadth to see what happens to 12 cases which stands referred for resolution under IBC, 2016.  Their combined debt stands at Rs 2, 53,732 crores.  

The implication of such low levels of recovery is severe.  In the debt stressed global economy, a new nomenclature has come into vogue - ‘hair-cut’.  This innocuous description represents the amount that the banks have to cover, over and above the provisions that they have made for possible default.  The lower the rate of recovery from the resolution process, the bigger will be the hair-cut that the banks will have to take.  The risk assessment consultant Crisil had projected on the basis of their study of 50 top NPA cases that 60 per cent hair-cut may have to be undertaken by the banks.  But if the actual experience of the first settlement is anything to go-bye, it will be much more.  

The Financial Stability Board (FSB) Peer Review Report of August 2016 revealed that 63 per cent of financial investments by ordinary Indians are within banking system.  PSB’s share is 63 per cent and that of private banks 18 per cent.  Since the PSB’s do not have control over the corporate entities which are responsible for the NPAs, the recovery from them has been only 15 to 20 per cent of the original credit.  The RBI’s lack of intervention to go hard on corporate defaulters is galling.

It is here that FRDI Bill 2017 steps in. It proposes a bail-in provision.  In effect, this is as simple as forcing the depositors to absorb the losses of the bank. Pensioners and other small depositors who have kept their hard-earned savings will be forced to pay for the corporate delinquency and cronyism of the government which often forces the banks to go easy on big corporate debtors.  What is most cruel that once the RC decides on such bail-ins, the depositors will not even be in the knowledge, let alone consenting!

This is not fictional. In Cyprus, under similar conditions depositors had to bear 47.5 per cent of the uncovered amount in reality.

From Vijay Mallya to Anil Ambani, from Lalit Modi to Gautam Adani – we are all witness to the obnoxious episodes which have brought out the reality behind the rhetoric of ‘crusade against corruption’.   The promised Rs 15 lakh never materialised; but now hard-earned savings of Rs 15 lakhs which was secured in PSBs’ custody to be withdrawn for a daughter’s marriage or a son’s higher education, may actually turn out to be Rs 1 lakh! This is only what FRDI Bill proposes.  Could irony be crueler?

This war against the common citizens has to be fought back with all our might. The employees and officers unions of the banks have already waged a massive struggle. Arun Jaitley responding to the growing resistance speaks of reviewing some of the provisions. But given the overall aggressive of the government, nothing much will come out of such diversionary lip service.  The issue is not merely of privatisation of public sector financial institutions and the security of employment but far more; the people’s savings and their future.  It is a livelihood right; and private property guaranteed by the constitution. Therefore, only the broadest possible unity towards a mighty struggle to meet this challenge can salvage the day.  

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