Save Public Sector Banks – Save Nation

C P Krishnan

THE country is entering 50th year of bank nationalisation. On July 19, 1969, 14 major private banks were nationalised. In 1980, six more private banks were nationalised. It is an epoch making event, because only after that, the money deposited by the common people in the banks became safe. Before that, hundreds of private banks collapsed like a pack of cards.  People who deposited their hard earnings in the private banks panicked as their small savings meant for important domestic needs like education, marriage, hospitalisation were lost. The agriculture sector contributed to the extent of 44 percent to the gross domestic product of the country during the 1960s; whereas the private banks lent to the extent of only 2 percent of the total loans to agriculture.

The country was reeling under abject poverty as there was no sufficient food for the people. Only after nationalisation of banks, the concept of priority sector lending came into force. 40 percent of the total loans were earmarked for the priority sector like loans to rickshaw pullers, petty shop owners, farmers, artisans etc.  Out of this 40 percent, 18 percent was mandatorily allocated to agricultural sector. Nationalisation of banks played a vital role in our country attaining self-sufficiency in food production.

Thousands of branches were opened particularly in the rural and semi urban centres.  On the one hand, the people were encouraged to save money in the banks and on the other hand, banks lent to poor and marginalised people which helped them to improve their standard of living.  The private banks which were under the control of Tata, Birla, Pai, Thapar etc., became public sector banks to subserve the national priorities like agriculture, employment generation, export, eradication of regional imbalance in growth etc.  In a nutshell, the concept of class banking which was helpful only to a handful of rich was changed to mass banking to help lakhs and crores of ordinary people.

This journey continued upto 1991.  With the advent of the neo-liberal policies, the banks became the main target of the rulers for reforms.  The Acts were amended in 1993-94 to reduce the government share holding to 51 percent from 100 percent in all the public sector banks.  Thereafter all the successive governments at the centre started weakening the public sector banks in some way or the other.  Committee after committee, whether it was Narasimham Committee I or II or Tarapur Committee or Raghuram Rajan Committee or P J Nayak Committee, recommended for privatisation of the public sector banks and changing the concept from mass banking to class banking. On top of all, the Gyan Sangam, the conglomeration of the chiefs of the public sector banks met in Pune in January 2015 in the presence of the finance minister and the prime minister and demanded reversal of all the policies that were implemented post nationalisation of banks.  For instance they wanted to dilute priority sector lending, reduce number of branches in the rural areas, reduction/denial of infra-structure lending etc.

The present Modi government goes in a neck breaking speed to implement the so called reforms.  One public sector bank, IDBI which has fallen prey to the flawed lending policy and recovery policy designed by RBI is sought to be privatised through LIC take-over route. Another public sector bank, Dena Bank has been banned by RBI from fresh lending and recruitment since May 8, 2018.  This is nothing but an attempt to close down this bank as the life line is sought to be cut down. 

MOUNTING NPAs DURING BJP RULE

The non-performing assets of the public sector banks which were about Rs 2.16 lakh crores at the time this BJP government came to power, has risen to about Rs 9 lakh crores during this four-year period.  More and more lending has been extended to the large borrowers whose credit exposure is Rs 5 crores and above and they are the ones who created huge NPAs. 

While 100 percent collateral security is insisted for education loan above Rs 7.5 lakhs, only 15-20 percent of the loan amount is mandatory for the loans to the corporates to the extent of thousands of crores of rupees.   Thus when the loans turn bad, the banks are not in a position to realize its full outstanding as the owners/promoters of the firms which take loan have only a limited liability. Their personal properties or the properties of their other firms which are profitable cannot be attached. All the present laws of the land, be it DRT Act, SARFAESI Act or IBC Act (enacted in May 2016) have proved to be of little use in recovering NPAs of the corporate sector. According to the Financial Stability Report - Issue No 17 of RBI published in June 2018, large borrowers accounted for 54.8 percent of the gross advances and 85.6 percent of gross NPAs in March 2018.

Instead of changing the lending policy and recovery policy including recovery laws, the government of India and RBI resort to huge provisioning for the corporate NPAs and thus almost all the PSBs are forced to incur net loss. The following table will reveal this.

The financial result of all the public sector banks put together; amount in crores of rupees:

Year

Operating Profit

Provision

Net Profit/Loss

2014-15

1,38,720

1,01,186

+37,534

2015-16

1,36,199

1,54,189

-17,990

2016-17

1,58,854

1,70,671

-11,817

2017-18

1,55,586

2,40,955

-85,369

Total

5,89,359

6,67,001

77,642

During this four-year period of the BJP government, even though the PSBs have earned huge operating profit of Rs 5,89,359 crores, they were forced to incur a net loss of Rs 77,642 crores since a high provision of Rs 6,67,001 crores were made.  Out of this provision, nearly 90 percent were due to the NPAs of the large borrowers.

LARGE SCALE WRITE OFF

Further, a large scale write off has also been resorted to in this period.  While the total amount written off during the 10 years of UPA rule was about Rs 1,47,000 crores; as high as about Rs 2,72,000 crores have been written off during the BJP rule upto December 2017. Again nearly 90 percent of the written off amount are NPAs created by the large borrowers. Thus the hard earned profit of the PSBs is doled out to large borrowers in the name of write off. 

With all the hurdles created by the government and the RBI, PSBs are rendering real service to the common people.  They excel in taking care of the credit needs of the poor and the marginalised people at lower rate of interest compared to any of the private sector banks.  The minimum balance, the penalty charges for not maintaining minimum balance etc., are far lower in the PSBs compared to their counter parts in private sector. Out of 32 crore Jan dhan accounts, nearly 26 crore accounts have been opened by PSBs, another 5 crore accounts have been opened by regional rural banks and barely 1 crore accounts i.e., 3 percent of the total accounts have been opened by private sector banks.

The private banks are given undue encouragement in this BJP rule.  Two new private banks namely Bandhan Bank and IDFC Bank came into operation with universal banking licence. More than 20 small and payment banks were given licence and many of them have come into operation.  The private banks do not serve common man.  They do not serve the rural poor.  They circumvent the priority sector lending. Their minimum balance amount and their charges for not maintaining the same are much higher compared to that of the PSBs.  Their lending rate is also high.  For instance some of these private banks charge as high as 25 percent interest per annum for small loans upto Rs 35,000.  Yet they are not checked by the RBI. 

But day-in and day-out, many people at the helm of affairs have been campaigning for private sector banks, whether it is Arvind Subramanian, chief economic advisor who demitted his office recently or Viral Acharya, deputy governor, RBI or Urjit Patel, governor, RBI to name a few.

But the working class will not relent.  The PSBs have to be protected in the overall interest of the common man of this country. At the same time, the lending policy and the recovery policy of the banks have to be made transparent and pro-people. Bank employees’ movement has been waging a battle in this regard through continuous campaign and struggles which need to be supported by all the democratic forces.

 

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