Bank privatisation is against people's interest

Chandra Bhan

The country witnessed a total and successful all-India strike by the employees of all banks in public and private sectors, foreign banks, Regional Rural Banks (RRBs) and cooperative banks on November 15, 2000. The United Forum of Bank Unions issued the call on the following demands:

a) Against privatisation of Public Sector Banks (PSBs) by way of dilution of govt. equity to 33%;

b) Against the introduction of Voluntary Retirement Scheme (VRS) in public sector banks;

c) Against the contemplated reduction in retirement age from 60 to 58.

These contemplated measures of the Vajpayee Government, on the recommendations on the Narasimham Committee, are against the interests of the nation, national economy, banking industry and also bank employees. Bringing down the government equity below 51% is privatisation of banks. This will be an act of regression and not reform measure, as it will put the country’s wheels backward.

On 19 July, 1969, 14 major banks were nationalised followed by 6 more on 15 April, 1980. In between, 196 RRBs were established in the country in the public sector. This apart, there are public sector banking institutions like IDBI, NABARD, SIDBI etc. Today, about 80% of banking activities are in public sector.

Nationalisation of banks was necessitated when the nation, after independence, needed massive investments in agriculture and industry so as to make the country self-reliant in food and industry, particularly in core sectors like electricity and steel etc. Food was scarce in the late ’50s and ’60s and it led to food riots. Private sector banks never cared for the country but were concerned only about expansion of their own industrial empires with the people’s savings mobilised in banks as deposits. If India is today self-sufficient in food, the credit must go to the public sector banks, which have gone to the villages and extended credit to peasants and other sections of the rural poor. But for the enormous expansion of PSBs and the massive credit delivery to the rural sectors, poorer sections, export sector and other priority segments, the country could not have come to its present position.

The real question with regard to the banks is not the extent of ownership of equity but control over the capital resources. In fact, in banking industry, paid-up capital plays a very nominal role as will be evident from the following facts:

 As on 31 March, 2000 (In crores)
 Name of the bank	Paid-up capital		Deposits
 State bank of India	526.30			196821.00
 Bank of Baroda		294.32			51308.00
 Oriental bank of
Commerce 192.53 22095.21
 Central Bank of India	1805.45			35871.71
 UCO Bank		2264.52			18359.95

In a country like India, where vast masses are illiterate, where banking habits are extremely slow and sluggish, safety of people’s savings in the form of deposits has to be the prime concern of the financial authorities. The government control over the capital alone can guarantee the safety of people’s savings against private ownership of equity. During the last few years, when some PSBs reported losses for reasons beyond their control, deposit growth rate signifying people’s confidence was better than profit-making private banks.

Once the banks are privatised, the enormous resources mobilised in banks out of people’s savings would not be available to the government for developmental purposes.

Privatisation of banks is aimed at diverting people’s attention from the staggering and ever-increasing portfolio of bad and doubtful debts, euphemistically called Non-Performing Assets (NPAs), which stand at more than Rs.1,00,000 crore if one adds the overdue interest on all ‘bad loans’ and ‘write-offs’ from the operating profits.

Bank privatisation is aimed at providing a cover to the errant banks and defaulters and divert people’s attention from this key issue, which is solely responsible for the present ill health of banks.

It is argued that for meeting the requirement of Capital Adequacy Ratio (CAR), privatisation of banks is inescapable. This is not true. Once ‘bad loans’ are recovered for which drastic and stringent steps — legal, moral and penal — are needed and banks are allowed to run by professionals free from bureaucratic control and political interference, nationalised banks shall be earning handsome profits. It is the Government’s inaction in recovering bad loans that is prime reason for the banks’ problems of CAR. The latest scheme of the RBI for recovery of big loans through compromise proposals is a bonanza to the loan defaulters.

It is also argued that even though the government equity will be reduced to 33%, the public sector character of the nationalised banks will be retained because the government will appoint chairmen/MDs of the banks. Out of 15 directors, 10 will be from private sector. A chairman of the bank, though appointed by the government, shall be bound by the Board of Directors where private sector will be in unchallengeable majority. Hence the talk of retaining the public sector character of the banks is without any basis. Once the banks are privatised, everything will be private.

Once the nationalised banks are handed over to the private sector, credit flows to the rural sector and agriculture shall be steadily choked. Similarly, small, mini and cottage industries, self-employed persons, like vendors, cobbles, rickshaw-pullers shall be thrown out of the credit delivery system.

The recent bank failures in South-East Asia, including Japan, could hardly affect India or its banking system. The reasons for this contrasting situation are not difficult to understand. While India had a strong public sector banking system, more or less well regulated, these Asian Tigers were having private banks, with hardly any regulation and run on the prescriptions of World Bank and IMF. While many banks closed down, currencies collapsed, thousands lost their jobs, economy got the rudest shock, resulting, ultimately, in political instability. Taking advantage of this chaos and anarchy, foreign capital took over many banks and the financial system.

Bank privatisation is hence against people’s interest.