Of Reform’s Bondage

Private Banks Opened Up to Foreign Control

— Sukanta Mondal

Despite the Left crying itself hoarse over the CMP, the UPA government at the centre has been doggedly pursuing its reforms agenda. One of the most important areas where the reforms are targeted to take deeper roots is the financial sector. This is the preferred route for international finance capital, to dominate the economy. A host of decisions in this direction have been announced in quick succession recently, the most disturbing of which is the decision to allow foreign stake in private commercial banks. The Ministry statement says that the foreign banks would be allowed to purchase 10% of the shares of the private commercial banks every year so that they can acquire a controlling stake in those banks within three to four years. The public sector banks have been kept outside the purview of this decision for the time being. But let there be no doubt that the preferred destination of such investments is the huge domain of the public sector banks, and the UPA government will be too willing to oblige them very shortly.

Let us look at some relevant facts about the volume of deposits and credits controlled by the public sector banks vis-a-vis the private domestic as well as foreign banks in the country during the financial year 2002-03 (see table). It would be evident that the public sector banks control 78.55% of the total deposits and 73.96% of the total credits of the banks in the country as against only 21.45% and 26.04% respectively by the private banks. The corresponding figures in monetary terms are Rs. 10,02,411.2 and Rs. 5,59,052.0 crore and Rs. 2.73,784.5 and Rs. 1,96,916.8 crore respectively. So it is too obvious that the foreign banks are eyeing the huge financial base of the public sector banks and will not rest content merely with the controlling stake in the relatively much smaller domestic private sector banks, which control only 16.94% and 18.95% of the total bank deposits and credits of the country respectively.

(Source: Money & Banking, CMIE, September, 2004)

What great service will be done to the nation by this decision? Whose interests will be catered to? Let us examine the performance of the foreign banks, to have an idea about the interest groups who would be benefited by the foreign entry into the banking sector. Out of the total credits of Rs. 53,626.2 crore disbursed by the foreign banks in the country during 2002-03, a meagre Rs. 675.7 crore (1.26%) went to the agricultural sector. The bulk went to the industry (Rs. 23,966.9 crore – 44.69%) out of which manufacturing and processing consumed Rs. 21,861.6 crore (40.77%). The next highest disbursement was in the form of personal loans, which amounted to Rs. 15,802.7 crore (29.47%). It is needless to clarify further who would be the real beneficiaries of foreign control over the banking capital. The captains of the big industry and high-income islanders, of course! And the priority sector would definitely be the first casualty.

Another decision - setting up of an Investment Commission - has been announced. The obvious intention is to explore the avenues for channelising foreign investment into the country. So far as FDI is concerned, bank, insurance, telecom are the fond destinations of international finance capital these days. Recently the Planning Commission Deputy Chairman Montek Singh Ahluwalia has gone on record questioning the government’s majority control in PSU banks and said that this issue needs to be tackled to meet the ‘Challenges of globalisation’.

Pension funds are among the other lucrative areas keenly eyed at by the international financial barons. So pension reforms have been high on the agenda of financial reforms since NDA govt. days. Now the Union Cabinet has approved a proposal to introduce a bill to establish an independent pension fund regulatory and development authority (PFRDA) to pave the way for pension reforms. Reportedly the Finance Ministry prefers 100% FDI in pension fund management. Contributory pension has been made mandatory for all new recruits to the central government services (except the armed services), where 10% of salary and DA is to be contributed by the employee and matched by the government. This is a prelude to doing away with the old pension security system of the govt. employees altogether and placing the whole pension system involving billions and billons of rupee-pension funds at the disposal of the foreign players.

The UPA government is working overtime to further the globalisation agenda. During his recent foreign visits the PM has assured his international bosses in unequivocal words. The coordination committee with the Left is being systematically made redundant. The Left is being consulted only to be ignored. No amount of lobbying and drawing room pressure tactic can tilt the Congress-led UPA govt. from its avowed class path of anti-people reforms. Only the struggle in the streets can do so. q