On restructuring of the banking sector
Top 10 defaulters owe Rs 2,000 crore to the PSBs 
The top 10 defaulters to the banking industry have Rs 2,000 crore outstandings against their names, according to the latest data. At present, total NPA with banks stand at about Rs 55,000 crore. AIBEA has said huge amounts of profits are being utilised for increasing provisioning for bad loans. In the last five years, out of gross profit of Rs. 1,15,000 crore, about Rs. 45,000 crore has been utilised for provisioning bad loans. That apart, huge amounts are being written off towards bad loans. It is learnt that in the last 10 years, about Rs 75,000 crore of bad loans have been written off.
Top Ten Defaulters
DCM Ltd
Lloyds Steel
Core Healthcare
Prakash Industries
Malvika Steel
Usha Ispat
Uniworth
Pyrites Pvt Ltd
Bellary Steel
IG Petro |
Getting rid of staff is the only prescription for all Banks for all seasons -- whether banks are strong or weak, whether it is boom time or bust time, whether interest rates are rising or falling, whether it is NDA or UPA which is ruling. Barely a couple of years after VRS -- which left bank employees carrying workloads double the previous one -- they are being herded through another round of restructuring and mergers. All because they worked harder and returned larger profits than ever before for their banks. If VRS was introduced to rid the banks of “excess” staff so as to enable their banks to have a stronger balance sheet, mergers are being touted as a much needed step to bring the banks to international levels -- yet again by getting rid of staff or transferring them. This has been a remarkable year for banking consolidation. Worldwide, over $200 billion worth of deals have been struck in the financial services industry this year. The virus has spread to India too. RBI Governor Y V Reddy says the mergers and acquisitions in the banking sector must be market-led rather than prompted by Government or regulator. He also feels that all public sector banks could be converted into companies, to accord flexibility for changes in ownership, for mergers and acquisitions, and for sound corporate governance and motivation for the workforce to compete effectively. The Finance Minister had a meeting with CEOs of public sector banks on January 27 to discuss issues relating to consolidation in the public sector banks, managerial autonomy, corporate governance and progress in credit off take. His ministry is of the view that regional synergies and similar technology platforms are the underlying factors that might lead to merger of banks. By all indications, the Union Budget later this month is expected to unveil the roadmap for consolidation in the banking sector. The first to be on line is the merger of Union Bank of India with Bank of India. The merger proposal has received approval in principle from the Reserve Bank of India and the finance ministry is expected to give its green signal in the budget. The merged entity will have an asset base of over 1,43,000 crore (Rs. 1430 billion) and will be the second largest commercial bank in the country, overtaking the ICICI Bank. It will have a network of 4,582 branches and over 68,000 employees. However, after the merger the new entity will have to close down about 200 branches. The government reasons that big merged entities will have a bigger scope of cutting down on costs. It will also be possible for these companies to compete with the multinationals abroad. It is hard to agree with the government for the figures speak for themselves -- even a merger of all 19 nationalised banks together will not create a new entity of international status. The Tier I capital of JP Morgan Chase, HSBC and Deutsche Bank, for instance, stands at $23,167 million, $13,380 million and $27,302 million respectively. In comparison, Indian banks such as SBI, PNB or Canara Bank appear to be midgets. Their Tier I numbers are $114 million, $57 million and $89 million respectively. The consolidated figure for all the 19 nationalised banks is $2,965 million.
AIBEA General Secretary CH Venkatachalam said that by allowing FDI up to 74 per cent in private banks having a total capital base of Rs 3,000 crores, the Government would help foreign institutions to have control over Rs 3 lakh crore deposits of these banks by having a meagre investment of just around Rs 2000 crores. This is "very dangerous", he added.
Going by the indicators of the current government policy, these moves are likely to be the first step towards giving multinationals a big share of the pie in the Indian market. Our government has always been susceptible to pressure from multinational banks and sooner or later it will agree to give them a stake and later on allow them to takeover of some of these large banks. Despite all the tall promises presently being given, the employees will of course lose their jobs once the MNC banks takeover. The current proposal of restructuring of the banking industry is a decisive reversal of the policy of public ownership of banking. By and large public sector banks have catered to a wider cross section of society. Till the late 1990s the priority sector was given due consideration by providing differential rates of interests. Agriculture and small sector did receive priority for last 30 years. However, deregulation has transformed this picture radically. Today, we find new generation banks like HDFC Bank and ICICI Bank, modeled on Citibank or HSBC, focusing only on niche customers totally neglecting small enterprises which contribute to around 40 per cent of economic activity. Big corporations are able to borrow at interest rates lesser by 2 per cent or through commercial paper with interest rates of around 6 per cent; retail lending for housing and cars is as low as 7% compared to 14% for the small-scale industrial unit employing a dozen workers. Closure of bank branches are resulting in total withdrawal of banking operations in parts of the country. The biggest dent in banking operations will come in the “loss making” rural parts of India where people will have to fall back on moneylenders. As the Government, needing more funds, rushes through with the mergers, the legal hurdles in the way of restructuring having been cleared with the Supreme Court quashing most of the cases against privatization of public sector units. There is already a storm brewing in the sector. The bank unions are restive at the injustice meted out to them. The AIBEA has announced a “March to Parliament” on March 11 and threatened to call a strike in the third week of March against the ongoing restructuring in the banking industry. Fearing opposition from the employees, neither the Government nor the IBA has discussed the issue of consolidation with the unions. They are unilaterally going ahead with restructuring. For the employees, it is time to take to the streets.
-- Girish Ghildiyal