Indian Banking Takes a Full Circle

Coming soon! The end of public

sector banks
By

1
 Chinu

“We may bite the bullet and draw up plans for privatisation.'
'If that is done now, the sale of the government stake will fetch money; a delay will see
erosion in whatever value is left in these banks,' says a government sympathiser “

Having struck the last nail in the coffin of the Public Sector Banks (PSBs), the government is
all set to bury them. Following IMF instructions, the Bill for the privatisation of banks was
passed in the winter session of the Lok Sabha during the NDA I regime. The Banking
Companies (Acquisition and Transfer of Undertaking) and Financial Institution Laws
(Amendment) Bill 2000, was passed in the Lok Sabha by 209 votes to 159. The Bill provides
for the drastic reduction in government equity (shares) in PSBs to a mere 33% from the
existing ―not less than 51%‖.

Major foreign banks have been hovering over these PSBs like vultures, waiting to swoop in
for the kill. Banks like the HSBC (Honking and Shanghai Banking Cororation), Standard
Chartered, Bank Brussels Lambert, ABN Amro and Citibank have openly expressed their
intensions of acquiring Indian Banks ―when the laws of the land permit‖. This is quite
natural, as these PSBs, with insignificant equity capital, hold gigantic deposits, of the public.
So, with a small amount of funds, these TNCs can grab control of the huge savings of the
Indian public.

It is gigantic betrayal of the national interest, taking Indian Banking a full circle, putting it
back into the direct hands of the imperialists. The Imperial Bank of the colonial era will
return, with changed names and faces, in a new form.

The immediate fallout was the government instruction for the removal of over 10% of the
employees. It is estimated that by March 2001, roughly 12% of the 9 lakh employees have
accepted the VRS [Voluntary Retirement Scheme] package and leave – i.e., an employee
reduction of 1 ½ lakh!!

The government claim that it will retain control even after dilution of equity to 33% just
because it will retain the power to appoint the CMD [Chairman cum Managing Director], is
an outright hoax. In the new establishment out of 15 directors on the board 10 will be from
the private sector. The CMD will therefore remain a mere puppet in the hands of this brute
majority. So, after gaining control of these PSBs, with a few crore investments, they will take
control of their vast deposits. The table below shows how lucrative this purchase will be.

The real problem of banks is not the ownership of equity. In fact, in banking industry, paid
up capital plays a very nominal role as will be evident from the following facts.

(Rs. in crores)
NAME OF THE BANK PAID UP CAPITAL DEPOSITS
State Bank of India 863 2,911,386.01
Canara Bank 753.24 599033.28
*Fresh capital infusion of Rs 4,360
INDIAN OVERSES ABNK
217963
*9,141.65

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 Bank of Baroda 530.36 6,38,689.7
Bank of Maharshtra 2,753.17 140,650.09

Public Sector Banks (Government Shareholding %, as of 1st April, 2020]

Anchor Total Branc

Merged Banks Revenues
Bank Assets hes

Bank of  Vijaya Bank ₹16,130 ₹422

Baroda (63.74 billion (US$2 billion (US$5.9 9,481
 Dena Bank
%) 30 billion) billion)

Bank of ₹9,030 ₹418

India(87.054% billion (US$1 billion (US$5.9 5,000
) 30 billion) billion)
Bank of ₹2,340 ₹130.53
Maharashtra (8 billion (US$3 billion (US$1.8 1,897
7.01%) 3 billion) billion)
Canara ₹15,203 ₹558.30
Bank (72.55%  Syndicate Bank billion (US$2 billion (US$7.8 10,342
) 10 billion) billion)
Central Bank ₹4,680 ₹259
of billion (US$6 billion (US$3.6 4,666
India (88.02%) 6 billion) billion)
Indian ₹8,080 ₹405.74
Bank (81.73%  Allahabad Bank billion (US$1 billion (US$5.7 6,104
) 10 billion) billion)
Indian ₹3,750 ₹235.2
Overseas billion (US$5 billion (US$3.3 3,400
Bank (91%) 3 billion) billion)
Punjab and
₹1,710 ₹87.44
Sind
billion (US$2 billion (US$1.2 1,554
Bank (79.62%
4 billion) billion)
)
Punjab  Oriental Bank of
Commerce ₹17,940 ₹774.22
National
billion (US$2 billion (US$11 b 11,437
Bank (70.22%  United Bank of
50 billion) illion)
) India
 State Bank of ₹52,050 ₹2,110.00
State Bank of
Bikaner & Jaipur billion (US$7 billion (US$30 b 24,000
India (61.00%)
 State Bank of 30 billion) illion)

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 Anchor Total Branc
Merged Banks Revenues
Bank Assets hes

Hyderabad
 State Bank of
Indore
 State Bank of
Mysore
 State Bank of
Patiala
 State Bank of
Saurashtra
 State Bank of
Travancore
 Bhartiya Mahila
Bank
UCO ₹3,170 ₹185.61
Bank (93.29% billion (US$4 billion (US$2.6 4,000
) 4 billion) billion)

 Andhra Bank ₹14,594 ₹696.39

Union Bank of
billion (US$2 billion (US$9.8 9,609
India (67.43%)  Corporation Bank
00 billion) billion)

So, to take an example of the Bank of Baroda, assuming the government at present owns
63.74 % of the equity, if this is to be reduced to 33% through dilution of capital, it would
mean an infusion of an additional around Rs.400crores. So any big business house or TNC
by investing barely few hundred crores can gain control of the huge deposits of Rs. 6,38,689
crore., assets ₹16,130 billion and revnue of₹422 billion .Besides, as it happened in the year
2000 market capitalization of these PSBs have dropped drastically-by as much as 30% to
45%. In other words the banks can be taken-over at even lower rates.

In the first instance, those that are likely to take control of the PSBs are those big business
houses, which owe the banks massive debts, euphemistically called non-performing assets
[NPAs]. Once they take over the banks, with their majority on the board of directors, they can
write-off these loans as bad debts. The amount entailed is a gigantic more than Rs.1 lakh
cores [The official figure in 2020 was ₹7.27 lakh crore crores, , but this does not include
the accrued interest], of which it is reported under RTI query that one third is owed
by Only 20 borrowers owed more than 16% of India's total loan portfolio. They are big
business houses. Once these NPAs are written off and the banks ‗restructured‘
through big pay-offs in the VRS scheme, they become ideal prey for the TNCs who
will gobble them up through so-called ―strategic partnerships‖. Imperial Bank, with
any other name will stink as much.

Look at this example

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The Makharia group is a willful defaulter in United Western Bank. It borrowed Rs.60 crores
from the Bank. The Bank agreed to waive Rs.30 crores of this loan and also to receive the
balance Rs.30 crores in easy installments in 10 years. Meanwhile the Company acquired
from the market 17% of the shares of the Bank (obviously from the very same loan amount)
and has demanded 2 of its nominees to be inducted as Directors on the Bank‘s Board.
Fortunately, the RBI has not given its consent to this.

If public sector banks are privatised, the same thing will happen and the defaulters will
become the owners of these banks. We must remember that Banks today have the hard-
earned savings of the common people and the total deposits in the Banks have gone up to Rs.
85 trillion Indian rupees. Is there not the danger to the safety to the savings of the people if
the banks are privatised. Everyone knows the history of the private banks in our country.

THE UPA ROLLS RED CARPET FOR NDA TO STRIKE THE FINAL NAIL IN THE
COFFIN OF PSB

The UPA‘s second stab at paving the way for an expanded presence of domestic and foreign
private capital in the banking sector and the dilution of government ownership of public
sector banks has moved one step forward, though after a compromise. The Lok Sabha has
passed a revised version of the draft Banking Laws (Amendment) Bill, 2011 in which clauses
allowing banks to engage in commodity futures trading and exempting the banking sector
from scrutiny by the Competition Commission of India (CCI) have been dropped First, the
draft amendment bill as introduced in Parliament seeks to drop completely Section 12 (2) of
the Banking Regulation Act 1949, which states: ―No person holding shares in a banking
company shall, in respect of any shares held by him, exercise voting rights on poll in excess
of ten per cent of the total voting rights of all the shareholders of the banking company.‖
Scrapping this ceiling of 10 per cent on individual voting rights would permit those
shareholders holding a stake in excess of 10 per cent to exercise voting rights proportionate to
their shareholding. Because of opposition to the clause the bill as finally passed has decided
to move one step forward, while retaining a restriction on voting rights that is below the
ceiling on equity ownership. It states, ―in sub-section (2), the following proviso shall be
inserted, namely:— ‗Provided that the Reserve Bank may increase, in a phased manner, such
ceiling on voting rights from ten per cent to twenty-six per cent.‘‖

This may seem altogether appropriate. But the original clause has served to ensure diversified
ownership in private sector banks, which is crucial since a bank is set up with minimal equity
when compared with the deposits it mobilises from the public at large. Expanded equity
ownership would allow powerful shareholders with a small absolute stake to control a bank‘s
operations and use depositors‘ money to advance their own interests or engage in speculation.
It was only with liberalisation, especially during the years since 2005, that individual or
groups of related shareholders have been permitted to acquire significantly more than 10 per
cent of total equity in private banks.

Second, the amendment bill seeks to revise a similar provision relating to public sector banks
under the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and
1980. As per Section 2E of that Act no shareholder in a public sector bank, other than the
Central government, ―be entitled to exercise voting rights in respect of any shares held by
him in excess of one per cent of the total voting rights of all the shareholders.‖ The
amendment bill seeks to raise this voting right limit to ten per cent.

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Third, the amendment bill seeks to render subject to RBI approval such acquisition of shares
by any person acting by ―himself or acting in concert with any other person, shares of a
banking company or voting rights therein, which acquisition taken together with shares and
voting rights, if any, held by him or his relative or associate enterprise or person acting in
concert with him, makes the applicant to hold five per cent.‖ While giving the RBI the right
of approval the bill makes the process of acquisition of an influential stake in a bank
transparent, it also provides the central bank the right to permit such acquisition on a range of
grounds varying from public interest or the requirements set by international best practices.
Without legislative limits a policy of permitting private majority ownership would be easy to
implement when decided on by the government.

Finally, the earlier draft version of the bill had proposed that when mergers and acquisitions
occur, resulting in combination and possible consolidation, the process should be kept outside
the purview of the Competition Commission. According to the original amendment bill,
―nothing contained in the Competition Act, 2002 shall apply to any banking company… in
respect of the matters relating to amalgamation, merger, reconstruction, transfer,
reconstitution or acquisition.‖ In essence, if as a result of approvals granted by the RBI
(whether influenced by the Finance Ministry or not) a process of consolidation begins, that
would be unstoppable. Fortunately this change has been blocked and the clause dropped,
though the effort to allow mergers without scrutiny is bound to continue given the UPA‘s
obsession with creating two or three banks comparable in size to leading global banks. The
implication of these moves is clear. While the revisions discussed above are embedded in an
amendment bill that also seeks to strengthen the RBI‘s regulatory control over cooperative
banks and such other institutions, the former rather than any other revisions being proposed
define the principal objective of the bill. This is indeed a major shift in policy reflecting the
victory of the liberalisers in government over the regulator (the RBI). It is important to recall
here the earlier view of the Reserve Bank.

The RBI‘s Report on Trend and Progress of Banking in India, 2003-04 (Chapter VIII:
Perspectives) states, ―The concentrated shareholding in banks controlling substantial amount
of public funds poses the risk of concentration of ownership given the moral hazard problem
and linkages of owners with businesses. Corporate governance in banks has therefore,
become a major issue. Diversified ownership becomes a necessary postulate so as to provide
balancing stakes.‖

Look at these examples

An instance that illustrates the conflict between the RBI and the government in the past is the
saga surrounding a relatively small bank, the Catholic Syrian Bank (CSB). In 1994,
Surachan Chansri Chawla and his Bangkok-based Siam Vidhya Group, had acquired 36.18
per cent equity in Catholic Syrian Bank. This private transaction between Chawla and the
bank was subsequently approved by the bank's board. The proposal for the acquisition of a
stake in CSB by the non-resident Chawla was also approved by the Foreign Investment
Promotion Board (FIPB) and the Cabinet Committee on Foreign Investment in early 1997.
However, the RBI rejected the Siam Vidhya group's request to transfer the bank's shares to its
name. This was because, under the bank ownership norms of the regulator, no single entity
can hold more than 10 per cent of total equity in any Indian bank. They were then held in
"trust" by the bank and Chawla challenged the decision in court. After much litigation, the
Supreme Court had directed the RBI to grant permission for the transfer of shares to the
group subject to the condition that it would divest 26.18 per cent shares, after retaining about

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10 per cent with it, on or before August 1, 2008. Following the directions of the Supreme
Court, the group did divest its excess stake after some delay.

In recent years the government has in a number of cases allowed the acquisition of equity in
excess of 10 per cent by single investors in some private banks such as ING Vysya. The
amendment being proposed would thus serve multiple purposes. One would be to legitimise
prior holdings of more than 10 per cent equity and permit these investors in private banks to
exercise voting rights proportionate to their stake. The second would be to permit acquisition
of other private banks by new investors, domestic and foreign, on the grounds that these
banks need to mobilise capital to strengthen their capital base, to meet the revised Basel III
capital adequacy norms. And, the third would be to gradually apply the same principle to the
public banks, in whose case spokespersons from both the government and the RBI have
declared that they need to go to market to raise additional capital. In sum, the objective of the
bill is clearly to permit new entry, consolidation and expanded foreign presence in a sector
that is the repository of much of household saving in the country.

For the government the process of freeing entry and control in the banking sector has been a
long and painfully slow process. It began as far back as 2004 when the Ministry of
Commerce announced a set of decisions with reference to foreign investment in the banking
sector, which set the cap on foreign equity in Indian banks at 20 per cent in the case of public
sector banks and 74 per cent in the case of private banks.

Consequent to the Ministry of Commerce announcement, the Reserve Bank of India issued a
comprehensive set of policy guidelines on ownership of private banks on 2nd July 2004.
These guidelines stated among other things that no single entity or group of related entities
would be allowed to hold shares or exercise control, directly or indirectly, in any private
sector bank in excess of 10 per cent of its paid-up capital. Recognising that the earlier 5th
March notification by the Union Government had hiked foreign investment limits in private
banking to 74 per cent, the guidelines sought to define the ceiling as applicable on aggregate
foreign investment in private banks from all sources (FDI, Foreign Institutional Investors,
Non-Resident Indians).

However, in the interests of diversified ownership the 2004 guidelines had declared that no
single foreign entity or group could hold more than 10 per cent of equity. There was also a 10
per cent limit set for individual FIIs and an aggregate of 24 per cent for all FIIs, with a
provision that this can be raised to 49 per cent with the approval of the Board or General
Body. Finally, the 2004 guidelines set a limit of 5 per cent for individual NRI portfolio
investors with an aggregate cap for NRIs of 10 per cent, which can be raised to 24 per cent
with Board approval. In keeping with its more cautious policy, however, the RBI decided to
retain the stipulation under the Banking Regulation Act, Section 12 (2), that in the case of
private banks the maximum voting rights per shareholder will be 10 per cent of the total
voting rights. The 10 per cent ceiling on equity ownership by a single foreign entity was
partly geared to aligning ownership guidelines with the rule on voting rights. Moreover, there
is a cap on voting rights for individual investors set at 10 per cent for private banks and 1 per
cent for public banks.

This is the policy that the government has sought to change since 2005 and to legislate into
law. It has now partially succeeded. The major opposition party through its former Finance
Minister Yashwant Sinha found a rather less significant and dilatory reason to demand the
return of the bill to the Committee on Finance. The bill if passed, he argued, will allow banks

7
to trade and speculate in commodity futures markets. But that is hardly the main thrust of the
proposed amendments to the banking regulation act of 1949. So the government partly
relented and dropped a couple of clauses, in order to push through a bill that would
substantially liberalise regulation of the banking sector.

But why have banks in India turned a full circle from the British Imperial Bank of the
colonial period, to the SBI of post – 1947, to nationalised banks of the 1970s and 1980s and
now to move towards private banking in the 1990s and its transfer back to imperialist control
in the new century?

Let us now take a brief look at this cycle of change:

Post – 1947 Banking

The Imperial Bank merely changed its name to the State Bank of India [SBI] by the State
Bank of India Act 1952. In 1953 the Palai Central bank collapsed. A similar fate faced most
of the banks run by the erstwhile maharajas, due to the large funds siphoned off. To save
these banks from default and to bail out the maharajas, 10 banks belonging to the princely
state were taken over by SBI in 1956 – these included the State Bank of Patiala, Saurashtra,
Bikaner, Jaipur, Indore, Baroda, Mysore, Hyderabad, Travancore and a number of smaller
ones like Sangli, manipur, Mayurbanj, etc.

In 1959 Palai Central Bank Ltd, Kerala which had reportedly financed some assembly /
parliament elections went into liquidation. It was followed by failure of Lakshmi Bank Ltd
Akola, in the next year .The list of such banks before Nationalization will be to big too be
named here.

In the late 1950s the government appointed the Mahalanobis Committee to look into the
precarious conditions of the private Banks. The Mahalanobs Report, recommended besides
handing out the standard formulae to reduce flab, trim size, etc., it suggested the
amalgamation of the less profit making banks with the others. This resulted in the
number of banks being reduced from 605 in 1950; to 423 in 1956; to 292 in 1961, to 102 in
1966 and on the eve of nationalisaion in 1969, to just 86.

Most of these banks that had existed were the offshoots of local landlords/Maharajas or big
traders and moneylenders who sought to extend the scope of their financial activities. Most
were in a state of collapse, due to irregularities and the take-overs by the SBI and mergers
saved them from default of depositor‘s monies. Besides, in the new scenario, after 1947, the
big bourgeoisie who became the dominating partner in the ruling class alliance could not
allow the fiscal anarchy profligacy of the moneylender/landlord/trader combine and had to
bring system into finance and banking to tap resources to the maximum. Following the
recommendations of the Rural Banking Enquiry Committee, the then Imperial Bank of India
was asked to open 114 new branches in rural and semi-urban areas within a period of 5 years
from 1.7.1951 to 30.5.1955. Only 63 branches were opened by it. Credit disbursed to the
rural areas was practically nil.

In the aforesaid background and on the recommendations of All India Rural Credit Survey
Committee, State Bank of India Act was enacted in 1955, transferring the Imperial Bank of

8
India to State Bank of India. Reserve Bank of India contributed nearly 97% of the equity of
SBI. Within a period of 5 years from its inception, SBI opened 415 branches as against a
target of 400 branches given to it. Pursuant to the same objective SBI (Subsidiary Banks)
Act was passed in 1959, which enabled the SBI to take over associate banks as its
subsidiaries. Thus, the period of 1955 to 1959 marked the beginning of public sector banking.

The aforesaid steps provided a fillip to provisions of credit to rural sector and also the
expansion of bank branches. This forced the Government to introduce the scheme of
“social control” in 1968.

That is why, 246 insurance companies were also taken over in 1956, with the formation of the
LIC. And to organise fiscal controls more tightly as per the goals set by the Tata-Birla
Bombay Plan, Nationalisation of the 14 major banks become a necessity. Anyhow, if not
nationalized, many of the private banks would have collapsed. The 14 major banks
nationalised out of the existing 86 banks, controlled 85% of banking in India. In 1980 another
6 banks were nationalised to save them from collapse.

Bank Nationalisation-

Bank nationalisation was necessary to bail out the collapsing private banks; it was a key
necessity to give the necessary fiscal push to an economy that had reached the end of its
tether.
First, big business required massive investments in infrastructure if it was to grow. Lack of
infrastructure and capital was leading to stagnation and decline. Nationalisation and the
expansion of banking, was a necessary factor, to systematically tap the people‘s saving in
order to generate the necessary capital.

Second, the rural sector faced an agrarian crisis. The widespread famine in 1967, and the
wide spread revolts of peasantry uprising in the same year found the rulers panic-stricken
with the spectre of socialism movements haunting them. The PL-480 grain doles, had, by
now got thoroughly discredited as a source for funding CIA operations within the country.
An alternative had to be found.

The ‗Green Revolution‘ was their answer to stem off a potential ‗Red Revolution‘. Besides,
imperialist agri business sought to switch their strategy from sale of grains [PL-480 style] to
the promotion of seeds, fertilizers, pesticides, and tractors, etc. The initiation of the Green
Revolution required certain amounts of seed capital, given on a concessional [even free] basis
to farmers, to encourage them to turn to the HYV varieties. Such capital and wide spread
disbursement could best be achieved through nationalised banking. So publicly raised funds
were used to initiate the imperialist sponsored green revolution. A vast network of rural
banking was set up, first to promote the green revolution; second to tap the surplus created to
channel it into savings for use by government / big business for infrastructural development.
By the mid – 1970s, there were 196 RRBs, 24,000 co-operative banks, 92,000 Primary
Agricultural Credit Societies, 2966 lending units for long-term credit and a host of other
financial institutions for rural banking like NABARD, etc.

Besides, linked to this, the focus for rural development changed from asset generation to
poverty alleviation. This coincided with Indira Gandhi‘s slogan of ‗Garibi hatao’. While in
the first two decades focus was on irrigation, land development etc; now the focus changed
to poverty alleviation schemes like IRDP, Jawahar Rojagar Yojna, and Indira Vikas Yojna

9
etc. All these schemes were intricately linked with bank lending and finance, necessitating
a wide network of branches. Both the Green revolution and so-called poverty alleviation
schemes [employment generation] were geared to extending the market for commodities
while keeping as much of the old feudal relations in tact, as was possible. It was also an
instant solution to prevent people’s revolt and resentment.

Nevertheless after nationalisation we saw the vast growth of banking within the country.
Public Sector Banks recognized as symbols of faith and confidence of common masses in
India and as the nation building institutions.

Road Map to Privatisation

In 1981 Indira Gandhi took the first IMF loan. One of the first conditionalties implemented
by the government was in the share of banking. Immediately the government declared that
nationalisation acts as a disincentive to the growth of private banking; and that henceforth
there will be no further nationalisation of banks.

By 1984 new recruitments in the PSBs was stopped, and restrictions were imposed on
issuance of licences augmenting branch expansion.

In June 1990, on the eve of the second IMF loan, the IMF issued its blue print for the process
of bank privatisation [see box below], which, till today, each successive government has been
following to the letter. In 1991 the Narsimham Committee was appointed to chalk out the
details towards privatisation as per the IMF recommendations. In the same year licences for
private banking was issued resulting in the opening of 10 private banks by 1993. Also,
foreign banks were allowed to extend their branches all over the country. To speed up the
reforms the Narshimham Committee II was appointed by the United Front Government
[notwithstanding the leftists anti-TNCs rhetoric], which the BJP government implemented,
with a speed that makes the TNCs euphoric. Till now, nearly 90% of the IMF‘s
recommendations‘ has been implemented. The dilution of government equity to 33%, the
entry of big business groups and write-off of the huge NPAs [bad debts], a further reduction
of staff; and then the final ‗strategic alliance‘ with TNCs is what remains.

IMF RECOMMENDATIONS (DT 26/ 06 /1990)

(as appended in the General Secretary Report of AIOBEU , 28 th conference)

In the near term

1. Reduce the budget deficit and start lowering the cash reserve and statutory liquidity
requirements with the objective of bringing the combined ratio down to 30 percent in
3 years and subsequently moving to market determined interest rates on government
debt.

2. Recategorise immediately commercial bank lending to larger borrowers among small-

scale industrialists and farmers, thus reducing the priority sector-lending target to
about 20 percent. Reduce further the priority sector-lending target to 10 percent in 3
years.

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 3. Rationalise, introduce flexibility in / or liberalise immediately the following interest
rates: development finance institutions long-term lending rate: export loans and
mortgage; capital market debt issues; and accept the Agricultural Credit Review
Committee‘s [ACRC] recommendations for concessional lending rates.

4. Give commercial banks operational autonomy immediately and recapitalise them as

needed after a portfolio clean up. Introduce higher prudential norms, supervision
standards and financial requirements. Improve legal procedures for foreclosures and
sale or transfer of assets. Allow competition by easing private sector entry and
expansion.

5. Allow greater financial and operational autonomy to developmental financial

institutions. Introduce prudential guidelines and supervision system. Allow Private
Sector entry in investment banking and increased private sector participation in
Industrial Credit and Investment Corporation of India [ICICI] and

6. Introduce better regulations for capital market transactions while decreasing direct
control. Eliminate tax preference for UTI and allow private sector mutual funds.

The recommendations for priority sector lending recategorisation, interest and reform of
financial institutions can proceed immediately, independent of budget deficit reductions.

In the medium term

1. Eliminate priority sector lending target.

2. Introduce floating interest based on a market-determined prime rate.

3. Further recapitalise commercial banks after internal restructuring and

reorganization to the Bank of International Settlement [BIS] standards, perhaps
through private sector participation and

4. Allow private participation in the Industrial Development Bank of India [IDBI]

and the Industrial Finance Corporation of India [IFCI] and also allow further
private sector ownership of ICICI to reinforce autonomy and facilitate business
innovation.

In the long term

1. Allow completely market determined interest rates and

2. Privatise commercial banks, development banks and money capital markets.

The happenings in the banking Industry over the past decade will amply evidence that the
above prescriptions by the World Bank are faithfully implemented by the Governments in
power in India since 1990‘s as under:

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  The capital of the banks to be increased by private participation
 New prudential norms like CAR ratio
 Privatization of Banks
 Higher level of computerization
 Reduction in priority sector lending to 10%
 Cut in subsidy for social lending
 Liberalization of interest in advances
 Interest rates to be determined by market
 Curbing of trade union rights
 Reduction in staff strength by 20%
 Ban on recruitment and outsourcing job, contractualisation of labour
 Amendments to rules to freely transfer the employees
 Easier rules to dismiss employees
 Deunionisation and union free environment,

This privatisation continues apace even though the reforms period has been accompanied by
massive banking scams-like the Harshad Mehta scam, BCCI scam, Bhansali scandal, etc- and
the collapse of 17 private banks. Indiscriminate licences have been issued even to local areas,
involving a capital of just Rs.5 crores. In fact, in these 14 years of reforms, frauds, scams and
outright loot has resulted in 17 private banks being bailed out by the nationalised banks.
These have been merged with the PSBs, which have taken over their bad debts as well.

Since the list of banks in the last 60 years will be too big to be named here, it would suffice to
mention the following banks, which had failed and were merged with one or other public
sector banks in the period following 1985.

Number of forced and voluntary mergers from 1961-2006 TABLE A

Duration Number of Mergers

(1961-1968) Pre-nationalization 46
(1969-1992) Nationalization 13
(1993-2006) Post-reform 21

 Forced Mergers 13
 Market driven Mergers 5
 Convergence of Financial Institutions into Banks 2
 Regulatory Compulsions 1
Total number of mergers 80
(Source: Compiled from various publications of RBI)

List of Banks in India Merged From 1961-2009 TABLE B

S.No. Name of Bank Merged Merged / Amalgamated with Date of Merger /

(Transferor Bank) (Transferee Bank) Amalgamation

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01 Prabhat Bank Ltd National Bank of Lahore Ltd. 09/03/1961
02 Indo-Commercial Bank Ltd Punjab National Bank 25/03/1961
03 Bank of Nagpur Ltd Bank of Maharastra 27/03/1961
04 New Citizen Bank Ltd Bank of Baroda 29/04/1961
05 Travancore Forward Bank Ltd State Bank of Travancore 15/05/1961
06 Bank of Kerala Ltd Canara Bank 20/05/1961
07 Bank of Poona Ltd Sangli Bank Ltd 03/06/1961
08 Bank of New India Ltd State Bank of Travancore 17/06/1961
09 Venadu Bank Ltd South Indian Bank Ltd 17/06/1961
10 Wankaner Bank Ltd Dena Bank 17/06/1961
11 Seasia Midland Bank Ltd Canara Bank 17/06/1961
12 Kottayam Orient Bank Ltd State Bank of Travancore 17/06/1961
13 Bank of Konkan Ltd Bank of Maharastra 19/06/1961
14 Poona Investors Bank Ltd Sangli Bank 28/06/1961
15 Bharat Industrial Bank Ltd Bank of Maharastra 01/07/1961
16 Rayalaseema Bank Ltd Indian Bank 01/09/1961
17 Cuttack Bank Ltd United Bank of India 04/09/1961
18 Pie Money Bank Pvt. Ltd Syndicate Bank 04/09/1961
19 Moolky Bank Ltd Syndicate Bank 04/09/1961
20 Merchants Bank Ltd Tanjore Permanent Bank Ltd 04/09/1961
21 Tezpur Industrial Bank Ltd United Bank of India 04/09/1961
22 G.Raghunathmull Bank Ltd Canara Bank 04/09/1961
23 Satara Swadeshi Commercial Bank Ltd United Western Bank Ltd 06/06/1961
24 Catholic Bank Ltd Syndicate Bank 11/19/1961
25 Phaltan Bank Sangli Bank Ltd 11/09/1961
26 Jodhpur Commercial Bank Ltd Central Bank of India 16/01/1961
27 Bank of Citizen Ltd Canara Banking Corp.Ltd 17/10/1961
28 Karur Mercantile Bank Ltd Laxmi Vilas Bank Ltd 19/10/1961
29 People Bank Ltd Syndicate Bank 14/11/1961
30 Pratab Bank Ltd Lakshmi Commer. Bank Ltd 11/12/1961
31 Unity Bank Ltd State Bank of India 20/08/1962
32 Bank of Algapuri Ltd Indian Bank 14/08/1962
33 Metropolitan Bank Ltd Indian Bank 14/08/1962
34 Cochin Nayar Bank Ltd State Bank of Travancore 08/02/1964
Salem Shri Kannikaparameshwari Bank Karur Vysya Bank 01/06/1964
35
Ltd.
36 Unnao Commercial Ltd Bareilly Corporation Ltd 12/08/1964
37 Latin Christian Bank Ltd State Bank of Travancore 17/08/1964
38 Southern Bank Ltd United Industrial Bank Ltd 24/08/1964
39 Shri Jadeya Shankarling Bank Ltd Belgaum Bank Ltd 26/10/1964
40 Bareilly Bank Ltd Benarus State Bank Ltd 16/11/1964
41 Thya Bank Ltd Lord Krishna Bank Ltd 16/11/1964
42 Allahabad Trading & Bkg.Corp. State of India Ltd 01/09/1965
43 Vettaikaran Padur Mahajan Bank Ltd Bank of Madura Ltd 01/09/1965
44 Malnad Bank Ltd State Bank of Mysore 06/10/1965
45 Josna Bank Ltd Lord Krishna Bank Ltd 13/10/1965
46 Amrit Bank Ltd State Bank of Patiala 03/02/1965
47 Chawla Bank Ltd New Bank of India 23/04/1969

13
 Banks Amalgamated / Merged since Nationalisation of Banks in India
48 Bank of Bihar Ltd State Bank of India 08/11/1969
49 National Bank of Lahore Ltd State Bank of India 20/02/1970
50 Miraj State Bank Ltd Union Bank of India 29/07/1985
51 Lakshmi Commercial Bank Ltd Canara Bank 24/08/1985
52 Bank of Cochin Ltd State Bank of India 26/08/1985
53 Hindustan Commer.Bank Ltd Punjab National Bank 19/12/1986
54 Traders Bank Ltd Bank of Baroda 13/05/1988
55 United Industrial Bank Ltd Allahabad Bank 31/10/1989
56 Bank of Tamilnadu Ltd Indian Overseas Bank 20/02/1990
57 Bank of Thanjavur Ltd Indian Bank 20/02/1990
58 Parur Central Bank Ltd Bank of India 20/02/1990
59 Purbanchal Bank Ltd Central Bank of India 29/08/1990
60 New Bank of India Punjab National Bank 04/09/1993
61 Bank of Karad Ltd Bank of India 1993-1994
62 Kashi Nath Seth Bank State Bank of India 01/01/1996
63 Punjab Co-op.Bank Ltd Oriental Bank of Commerce 08/04/1997
64 Bari Doab Bank Ltd Oriental Bank of Commerce 08/04/1997
65 Bareilly Corp.Bank Ltd Bank of Baroda 03/06/1999
66 Sikkam Bank Ltd Union Bank of India 22/12/1996
67 Times Bank India HDFC Bank Ltd 26/02/2000
68 Benaras State Bank Ltd Bank of Baroda 20/07/2002
69 Nedungadi Bank Ltd Punjab National Bank 01/02/2003
70 Bank of Madura ICICI Bank 10/03/2003
71 Global Trust Bank Ltd Oriental Bank of Commerce 14/08/2004
72 Bank of Punjab Centurion Bank 29/06/2005
73 United western bank Ltd. IDBI Ltd. 03/10/2006
74 Bharat Overseas Bank Ltd Indian Overseas Bank 01/04/2007
75 Sangli Bank Ltd ICICI Bank 19/04/2007
76 Lord Krishna bank Ltd Centurion bank of Punjab Ltd 29/08/2007
Shri Suvarana Sahakari Cooperative Indian Overseas Bank 19/05/2009
77
Bank Ltd.

The position of quite a few other private banks are said to be bad and every day we get some
news or the other about them. Some more ―new generation‖ private banks are also trying to
merge with some others. The Bank of Karad was instrumental in squandering of public and
Banking resources in the ill-famed security scam which followed the policy of liberalisation
in 1991. Foreign Banks in India were in the leadership role in the security scam in
conjunction with Private Banks. The Court had indicted Standard Chartered Bank for their
role in the security scam. In the case of Sikkim Bank Ltd, between two years of operation,
entire capital was eroded and CAR ratio reached a negative point at (minus) – 62.05%. The
Bank was finally merged to Union Bank of India. The only Public Sector Bank to be merged
during the period was New Bank of India. Here again the affairs of New Bank of India was
totally mismanaged and misused by the Private Ownership till 1980.

14
This is the performance of the private sector banking in India. They had / have no
commitment to the national goals and priorities excepting the goals and priorities of the
private ownership. These banks were the modified versions of crude moneylenders.

Besides, of the 10 new banks started in the 1990s, seven are in critical condition, and one –
the Times Bank – has collapsed and had been taken over by the HDFC, Relative to their brief
existence, most have acquired disproportionately large NPAs [bad debts] through fraud and
mismanagement. The only two successful ones-HDFC and ICICI – have virtually been taken
over by foreign capital. The foreign stake in HDFC is 74% and is increasing at a rapid pace,
while that of ICICI has reached the ceiling of 49%. What privatisation of PSBs will entail is
clear from this picture of private banking in the 1990s.

The so-called non-viable branches in the rural areas are to be closed down. The Narasimham
Committee II has suggested: to bring down priority sector advance from the mandatory 40%
to 10%; the stoppage of all subsidized loans to the economically backward sections and the
dilution of government equity in PSBs to 34%. Earlier banks had to lend at the rate of 6% to
the agricultural and other priority sectors – now, they are not allowed to lend below the
‗prime-lending rate‘, which is a minimum of 11%.

So we find that in the course of the 1990s the congress [I], UF and BJP governments have
systematically been implementing the 1990 ‗recommendations‘ [rather instructions] of the
IMF. If we look the two Narsimham Committee reports, which have been the basis for
government policy, they are nothing but carbon copies of the 1990 IMF recommendations.

Why Privatisation?

In the period of globalisation and increasing domination of international finance capital, the
model of development and the focus for market expansion is the top 10% of the population.
So all economic policy is aimed at hitting hard the bottom 80 to 90%, in order to fatten the
top 10%. So subsidy cuts, disbandment of PDS, drastic reduction in welfare measures, etc.
are geared to push the mass into even further destitution, and utilize those funds to subsidies /
promote big business, TNC‘s interest, infrastructure development etc.

In addition, the green revolution is in crisis and the banking structures that accompanied them
are not longer required. Besides, foreign agri-business plans to enter straight into the
agricultural sector. Finally, the bulk of the poverty alleviation schemes are being wound up or
reduced to nominal levels in regions. So the banking structures that accompanied it are no
longer required. Finally, the tapping of people‘s savings will be restricted, due to mass
impoverisation; and the 10% that will be able to invest their savings will be serviced by
private and foreign banks, with higher service charges.

While the efficiency of the banking operation leaves much to be desired, what has been
achieved has been unparalleled spread of bank branches and generation of employment,
which has made tremendous difference to the rural and urban economic activity

So, the privatisation of banks is necessary aspect of the ongoing globalisation of their
economy. It will result in massive retrenchment of staff. [i.e., agriculture, handicrafts and

15
small scale sector], putting the vast domestic savings at the service of TNCs, closure of
‘non-viable’ branches and throwing interest rates to the vagaries of the market.

Not only will such a step further infringe on the sovereignty of the country, but will have a
disastrous impact on the lives of the people. But the rulers of our country, acting as the most
vile agents of the foreign powers, are pushing through this ‗reform‘ at break-neck speed.
They will get bouquets from the super powers, but brickbats from the masses of India.

― We are never completely contemporaneous with our history.

For history advances in disguise

It appears on the stage wearing the mask of the preceeding scene,

and we tend to lose the meaning of the play”

- Regis Debray -

The author of this article. S.srinivasan was former general secretary of leading nationalised
bank employees’ union for over 23 years and senior office bearer of the union for 33 years

11-06-2020

16
THE FORGOTTEN PLEDGES & THE GREAT BETRAYALS

“ That the basic criterion of determining the lines of advance

must not be profit but social-gain, and that the pattern of
development and the structure of socio-economic relations should
be planned that they result not only in appreciable increase in
national income and employment but also in greater equality in
incomes and wealth. Major decisions regarding production,
distribution, consumption and investment, and infact all
significant socio-economic relationship, must be made by agencies
informed by social purpose.
-Resolution of the Lok Sabha
-December 1954.

“..Public ownership and control of the commanding heights of economic

and its strategic sectors were considered an essential aspect of the new
social order being built up in India. Financial institutions are amongst the
most important levers that any society has at its command for the
achievements of its social and economic objectives. The nationalization of
major banks was a significant step in the process of public control over the
principled institutions for the mobilization of people’s savings and
canalizing them towards productive purposes. The Government believes
that this step would help the most effective mobilization and deployment of
national resources so that national objectives would be realized with a
greater degree of success”

-Smt. Indira Gandhi 19-7-69

17
“ The Banking system touches the lives of millions and has to be inspired
by large social purposes and has to sub-serve national priorities and
objectives, such as rapid growth in agriculture, small industries and
exports, raising of employment levels, encouragement of new entrepreneurs
and its development of the backward areas. For this purpose, it is necessary
for Government to take direct responsibility for the extension and
diversification of banking services and for working of the substantial part
of the Banking system.

-Objectives of The Banking Companies

(Acquisition and Transfer of Undertakings) Bill, 1969.

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 SAFEGUARD AND STRENGTHEN
NATIONALISED BANKS
AND
SAVE OUR NATION

COMRADES!

ALWAYS REMEMBER!

FURTHER SUCCESS OF NATIONALISATION

WILL DEPEND ON

THE EFFICIENCY AND DEVOTION

WE SHOW IN OUR DAILY TASKS

19