Interview with Comrade Vishwas Utagi, Vice President of All India Bank Employees’ Association (AIBEA) regarding the two day meeting, “Gyan Sangam” in Pune officials of India's top banks
MEL: Comrade Utagi, Please tell us what transpired at the Gyan Sangam Meet on January 2nd and 3rd, 2015.
Comrade Vishwas Utagi (VU): This meeting was attended by the Prime Minister, Shri Narendra Modi, the Finance Minister, Shri Arun Jaitely, the Reserve Bank Governor, Shri Raghuram Rajan, the Finance Secretary, Shri Hasmukh Adhia, the Chiefs of selected Public Sector Banks, representatives of two Foreign Consultancy Companies, McKenzie & McKenzie and Ernst & Young. The representatives of LIC and GIPSA (General Insurers Public Sector Association of India), representing the 4 General Insurance Companies as well as IRDA (Insurance Regulatory and Development Authority) and the SEBI Chairman were also present. Brokerage companies of the BSE as well as Mutual Fund Heads were also present.
MEL: Were any representatives of the workers called?
VU: It is really shameful that none of the workers’ representatives were called. Of course they would have realized that we would oppose their plans that are not in the interest of the workers or the nation. By the way, no representatives of the media were called either.
MEL: What were the deliberations at this meeting?
VU: The presentations were made by the two consultancy companies, hired by the government to lay out a road map for restructuring of the banking sector. This is a part of the overall restructuring of the financial sector, which includes the insurance and mutual fund sectors besides banking.
The following steps are proposed for restructuring of the banking sector:
1. Formation of a Banking Investment Company (BIC) to which the Government will transfer its shareholding of the 27 operational Public Sector Banks.
2. Raising of the capital by disinvesting the shares of the Public Sector Banks. The target for 2018 is to raise Rs. 2.60 lakh crores.
3. Consolidation / merger of the 27 Public Sector Banks into only 6-7 large banks.
4. Complete privatisation of these banks along with NABARD (National Bank for Agriculture and Rural Development) and IDBI (Industrial Development Bank of India), which are specialized banks, lending money for agriculture and rural development and businesses respectively.
Let us take each one by one.
1) Banking Investment Company (BIC): A separate company, BIC, shall be floated to which all the shares of the Government in the different banks will be transferred. The BIC will thus become the owner of all the public sector banks. Finance professionals, for example from the mutual fund sector, will be recruited to run BIC. Currently the Government of India is the majority share holder in the 27 public sector banks. Ever since the privatization of the banks was announced in 1995, the government has diluted its holding in the public sector banks to 58% ( in State Bank of India) and up to 80% in some other banks. Every public sector bank has 4 members representing private shareholders on its board. The Reserve Bank of India itself has had on its board, at various times, big capitalists such as Birla, Mahindra, Narayana Murthy, etc. Progressively the shares of each of the public sector banks will be sold, whenever the share price is high.
The formation of BIC is not a new suggestion. It was recommended by the P. J. Nayak Committee, which submitted its report to the Reserve Bank Governor, Raghuram Rajan, in May 2014. P. J. Nayak is the Chairman of a large private sector bank, the Axis Bank! Raghuram Rajan had made the same suggestion first, in 2006, when he was with the World Bank. He wanted the Indian public sector banks to follow the American and European holding company pattern.
2) Raising of Capital: At the meeting of the Central Bankers of the big capitalist countries in Basle in 1995, they decided various norms for the banks so that they do not fail. One of them was about the Capital Adequacy Ratio (CAR) which was then fixed at 6%. (CAR is a measure of the bank’s capital expressed as a percentage of its risky assets, which consists of loans, investments and other assets. For example, with a capital of Rs. 100 the bank cannot give loans more than Rs.1666.66 (Rs. 100/Rs. 1666.66 = 6%, which is the CAR). In 2003, the CAR norm was raised to 9% and after the 2008 financial crisis it was further raised to 12%, to be achieved by April 1, 2015It is estimated that to maintain the CAR at 12% the capital of the banks would have to increase to Rs. 2.60 Lakh crores from the current Rs 25,000 by 2018.
So far the banks themselves raised the additional capital in proportion to the growth of their assets out of their profits, and only the shortfall was made up by the Government. All the PSBs are making profits and paying dividend of Rs. 7000 crores to the Government annually. Hence the shortfall was also made up by the government out of the dividends received from the banks but now, as per the decision of the Gyan Sangam, the Government would no more make up the shortfall. BIC would sell its shares and generate the additional capital required!
3) Consolidation / merger of the 27 Public Sector Banks into only 6 -7 large banks would mean that 20-21 banks would wind up. Huge amount of workers would be declared surplus due to the duplication of functions, and many branches would close down, since in any locality, the same bank will not operate multiple branches.
A similar consolidation is planned by merging the four General Insurance Companies, namely, National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited. Similarly, a merger of the 3 mutual fund public sector companies - UTI, SBI Cap and LIC Mutual Fund – is planned.
The consolidation of private sector banks is already happening as can be seen with Kotak Bank recently acquiring ING Vysya. Further consolidation is expected among the remaining private sector banks.
4) Complete privatization: All the above steps are only to hasten complete privatization. Finally, the government will reduce its holding in PSBs from 51to 26%. The AIBEA has consistently opposed the moves towards privatization of the public sector banks.
The experience of the world financial crisis of 2008 -2009 has not taught these people anything. The deliberations of the “Gyani Sangam” are prescribing policies for our country which have failed in America and Europe. It was only because our banks were in the control of the Government of India that India was spared from a major financial crisis at home.
MEL: Should we rename the “Gyani Sangam” as “Agyani Sangam”?
VU: Yes, that would be more appropriate.
MEL: The Government had recently announced that it would give licenses to open 10 new banks by December 2014. What is the progress on that front?
VU: 26 applications were received, including from the Tatas, Birlas and other monopolies. The LIC and Post Office, both Government of India undertakings, also applied. However, only two licenses were granted, to Bandhan and IDFC. Apart from the requirement of having a minimum capital of Rs. 500 cr, what dampened the spirit of the monopoly private groups was the requirement that the applicant company must disclose the accounts of all its sister companies. It is well known that many of these companies operate fictitious daughter companies, as a way of generating black money, both in India and abroad, and hence they did not pursue their application. The LIC and Post Offices were ideal candidates to be given licenses as they have a wide network of branches all over India. However, the prevailing mind-set in the Government is against opening up more space for public investment, but rather encouraging private investment. Hence they were not given licenses.
MEL: What is behind the Government’s Jan Dhan Yojana?
VU: So far 11 crore bank accounts have been opened up all over India. If every person puts Rs. 1000 in the account, the banks would collect Rs. 11,000 crores from the savings of the people. Also the Government wants to use these accounts to transfer cash subsidies, for example LPG and food subsidies. But this is a cruel hoax. The Government will over a period of time eliminate all the subsidies to the people.
MEL: Recently the RBI reduced the repo rate (the interest rate at which it lends money to the Banks). What is your view on this?
VU: Based on the rate at which the Reserve Bank lends money to the public sector banks, (i.e. the repo rate), the banks fix their lending rates and deposit rates. If the repo rate is lowered, then both deposit and lending rates get lowered. Reduction of lending rates is beneficial to big business. Reduction of deposit rates is harmful to the small depositors especially when there is no corresponding reduction in inflation rate. (It is to encourage more borrowing and increase use of credit card for purchases of white goods in an attempt to increase sales of such goods and bring down the unsold stocks with companies - Added Ed).The experience of the common man is very different from the low inflation rates being claimed now by the government.
MEL: The Bank Employees have been frequently agitating for their demands. What are the main demands?
VU: Our wages have not been revised for the last 2 years. Hence we are demanding an increase of 21% in our salary. The Indian Banks Association (IBA), the apex body of banks is asking us to accept 12% increase only. We were to go on strike for four days in the second half of January, but the IBA has called us again for negotiations in the first week of February 2014.
If the Government accepts our demands, it will mean an additional expenditure of only Rs.10,000 crores. The PSBs made a profit of Rs.140,000 crores this year but the Government says that out of this Rs. 60,000 crores is to be set aside for bad debts. Why should bank employees be penalized for the bad debts of the banks? The banks should take stronger punitive measures against the defaulters to recover their bad debts. The AIBEA has published the list of defaulters right from the 1990’s.
Currently there is a shortage of staff for running the PSBs. In 1991, the total strength of bank employees was 13 lakhs. Today the number has come down to 8 lakhs, 5 lakh clerical and 3 lakh officers. This is in spite of the manifold increase in number of branches and the banks business. Hence there is a huge additional burden on the remaining staff. In the next 3 years, 30% of the staff it is expected to retire, further adding to the problem; there was little recruitment in the period 1990-2010. The consultancy firm, McKenzie has estimated that by 2017, there will be a need for 10 lakh banking staff. However, the banks are resorting to increased outsourcing of the work. Employees are hired on contract for measly wages of Rs. 5000 per month with no security of service. It is against all these policies that we are fighting.
MEL: We fully support your Unions’ just and heroic struggle against the anti-people and anti-worker policies of the banks as well as of the government.