Merger and Loot

Targeting Nationalised Banks

Asis Ranjan Sengupta

Indian Economy, like the Global Economy, is in crisis, despite all falsification rhetoric on 'growth', 'size' etc. etc. The European crisis that emerged from the US, so-called 'sub prime lending' slowly spread and affected Euro currency market also, as obvious in a 'globalised' market operation. India, being the big beneficiary of World Bank finance, must come under the grip, today and tomorrow. The US-European crisis that dates back to 2008-9, hit the shores of India, a few years later, approximately late 2011-12. The delay was due to the fact that India was still not totally open, and the partial insulation, saved it at least for the time being. And also, because US was slowly recovering by transfer of crisis, by currency hegemony over international market operations.

During the UPA-I period, Nationalised Banks fast recovered from the shocks of the NDA regime, under late Vajpayee, by reduction of rates, and disinvestment threats, and they witnessed steady rise in public deposits, offering a good opportunity for liberal lending. The Deposits grew geometrically in UPA-II regime (2009-14), and the Government policy was formulated to accelerate lending, to register 'growth'. From this point, the loot of public money started. The sectors, where Banks in India never lent like infrastructure, etc. were given priority. In NDA period, the roles of such apex lending bodies, in core sectors like infrastructure and asset creation in big or small industry sector, as IDBI (Industrial Development Bank), ICICI (for institutional and infrastructure lending) SIDBI (Small Industries Development Bank), HDFC (Housing Finance & Development Company) were dismantled, and those were either abolished or converted into commercial Banks, in both public and private sectors, new NBFCs (NON Banking Finance Companies) came into being. So the responsibility of financing Fixed Asset of big industries, and big infrastructure projects, came on the shoulder of mostly Nationalised Banks. In developed economies, the huge amounts of initial asset creation, are raised from stock markets, by issuing bonds etc. But in case of India, stock markets do not have such worth, nor the entrepreneurs have the public credibility to raise funds. Moreover, with the opening of market, the restriction of Import or remittance were withdrawn, so, export essentially needed boost up to manage current account deficit, therefore, export business in such sectors as jewellery, were added to the traditional export sectors. As the burden of all big ticket lending came to the Banks, and that too on Nationalised Banks, in addition to their usual priority sector lending and welfare oriented financing, a novel concept of distributing the load, came into being,in the field of Indian Banking, that came to be known as "Consortium Lending" whereby a group of Bankers shared the distributed load. There was heavy pressure on Bankers to lend. This opened a flood gate of loans and related plunder by all in a league, Bankers, Leaders and Bureaucrats. This systematic plunder soon made the Banks sick, there was no way to hide, as international prudential norms did not permit that. Indian business houses, who jumped on the fray, snatched the plum share of public money by using political backing, and in connivance with Bank executives. They were more interested in diversion and usurpation of funds, rather than doing business. And the loan accounts went overdue, with repayment failures. From 2012, the pressure of bad loans, termed as Non-Performing Assets, started occupying more and more space in the balance sheet. To get rid of this crisis, Manmohan Singh, PM brought in Dr Raghuram Rajan, the world bank Economist, to tackle the problem. Dr Rajan started process of proper identification, and classification of bad assets, in a systematic way, without caring for the connection or personal profiles of the defaulting borrowers. That sent a panic wave in the big boss borrowers. These big hosues made all out efforts to get rid of this Dr Rajan. The first thing needed was to change the party in government, who brought him in. So the change of guard in 2014. Rajan continued his action, but got cold reaction from the new rulers. In 2016 he was sent back and one yes man was appointed.

This is the starting point of divesting the Central Bank of its role as a custodian of Banks. Slowly RBI, has been reduced into a puppet in the hands of government, and for that matter, the guiding force of RSS. The conventional legal methods, proved to be ineffective for recovery of bad loans, primarily because, it comes under civil jurisdiction, and law enforcers are least interested in using the existing criminal laws to fix the rogue borrowers for their acts of 'wilful' diversion or 'usurpation', because of their close proximity with top leaders. That is why the Modi led RSS government, first tried to recover the health of Banks by highly suspicious method of using depositors' money to bail out the Banks. For that they also brought one bill, Finacial Resolution and Deposit Insurance (FRDI) bill, but in face of public resistance, and vote Bank politics, they kept it in abeyance. Later, the FM, told that they decided to withdraw the bill, though there is no official confirmation of it yet. Then the Bankruptcy Law (IBC), was introduced, to absolve the borrowers of the liability to repay by declaring the enterprise as 'bankrupt'. First six big defaulting borrowers were selected for resolution, the Tata-Bhusan Steel, is still in process, and next Aloke Industry, put on auction to Reliance, suffered a jolt, as the bill amending the law of Bankruptcy Resolution, to accommodate Reliance at windfall gainful transaction, failed to pass the floors of Upper House. Very recently, RBI issued directives to put big defaulters accounts, above 2000 Crores, to bankruptcy, but that was challenged in Court, and curiously enough, Government of India is a party to the suit against RBI, as GSPC (Gujarat State Petroleum Corporation), the blue-eyed Modi project, with a tag of Rs 20000 Crores scam, comes under RBI directives. The sidelining of RBI, was evident from the days of Demonetisation, which was proclaimed and imposed, keeping it in the dark, even though, the currency management is its primary domain.

So, evidently, the Government is more worried over saving the culprits than recovery of loans. That is why they helped the safe flight of their pets abroad, and now staging the drama of bringing back, confiscation of assets, very much like hoax of bringing back black money from Swiss Banks. Now, they are up against the Nationalised Banks. All the big defaulters belong to Nationalised Banks, and the Ministers must save them, even at the cost of Banks or RBI. That is all. In the Parliament, FM Jaitley, informed the members that, after merger of SBI Associates, Government has no plan of immediate Bank merger. But after recovery from kidney surgery, he just announced merger of three Banks, Dena and Vijaya with BOB. This decision again has been taken keeping RBI in the dark, though, Central Bank, everywhere acts as a custodian of Banks. Bank merger is nothing new, earlier there were mergers, PNB with New Bank, Global Trust with OBC, and there were lot of such mergers, to rescue ailing Banks, and to protect the interest of the constituents. But in all cases RBI played the lead role from start to finish, it is their job. Even this decision, does not take cabinet into confidence. It is the product of the whims of one or two ministers, and their aides, as bureaucrats. Even the present RBI Governor Mr Patel, has openly complained, the helplessness of RBI in control of affairs in Nationalised Banks, though it has some control over the Private Banks. This situation has been deliberately created, because the Modi Government doesn't want them to handle the affairs of Nationalised Banks by anyone, as that may put their protected defaulters in problem, so apprehensive and worried they are.

The idea of the Bank consolidation, was first mooted by Narsinham Committee, 1991, but a lot of water has flown through the Ganges, the strengthening of Banking by creating mega entities, by now lost relevance in 2018. The argument of 'economies of scale', which means, the bigger the size, the more operational edge over weaker competitors, or less vulnerable to crisis, and greater shock absorbing capability, all these are discarded theories, after the overnight crash of financial giants like, Lehman Bros in US, in time of 2008-9, lending crisis.The idea of Banks "too big to fail", poses serious threat to financial stability. On the contrary, the present-day Finance Management theories, lay stress on the smaller operators, whose crash causes minimal damage, and damage control exercise becomes easier. The question is not of size or ownership, it is an issue of good management, and management only. Again, take-over may be of a smaller, weaker entity, by a bigger, stronger entity, but amalgamation of three, of which one, that is Vijaya Bank, with a different southern culture, must create a hodge podge chaos. Moreover, merging three in one stroke, creates confusion, as to who takes over whom. Before SBI merger with associates, all mergers were between two Banks, one taking over the other, and that is the thumb rule. But in case of SBI, it was the take-over Bank, and others were Make-over entities. But from this announcement, it is not clear who is taking over whom. But it may be presumed that Bank of Baroda will play the lead role as the biggest Bank. From this point the Big brother effect, most likely to create clash of interest and ego, that might create trouble, which is not good for the three, and very bad precedence in Indian Banking scenario. Vinod Rai, ex-head of Banks Boards Bureau, offered services to devise methodology to ease the troubles of consolidation particularly on the customers, at that time there was no taker. And again, the decision is not from any Banker. All hitherto unheard-of things have to be seen and done. No way!

The users at all levels are going to be put in trouble, in case of Dena Bank, originating in Gujarat, it is also a West based Bank, but Vijaya Bank, originating in Karnataka, (1938) is having a different customer base, relationship culture. People saw the difficulties faced by the customers of Associate Banks, in consequence of merger with State Bank, by way of closure of Branches, change of Numbers, IFSC Codes, Cheque Books, and all that. In case of Baroda and Dena merger, both have close network of Branches, in Maharasthra, and Gujarat, so there will be area-wise overlapping of a large number of Branches, and the Customer harassment, can be guessed easily. The Staff members and Officers, as well as the Retirees and pensioners, are going to undergo harrowing experience, because Dena Bank people will have to face Big brother handling by BOB, and Vijaya Bank people, will face the heckles of a different work culture.

So why this strike then? This is another purely political strike. Let Banks go to hell, FM Jaitley, as a result of long ailment, lost grip, over internal feuds of his party, and a lobby came to be active, to shunt him out, by implicating him, in the complicity with Mallya, to fly out safely. So, he was in a hurry to produce some stunt, this misadventure, gave birth to an uncared-for illegitimate child, who has Jaitley as the single parent. So, to nurture this helpless baby to maturity, which may take six months time, his job is secured till the next Elections. That's it.

The most formidable challenge before the Banks now is the corpus of bad, unpaid, unrealised or rather unrealisable debts. But from any communication from the Government, it has not been made clear how this merger can help resolution of that crisis. To tackle the RBI, and its' CEO, Dr Rajan was proceeding with cautious yet calculated steps. But after his departure, the heinous attacks on the very structure, in the name of 'reforms', of firstly Note Ban, and secondly, erratic, hasty GST implementation, upset the existing arrangement, without creating any fresh alternative. BJP spokespersons are now shifting the blame on UPA regime, but on record, during NDA regime, following the departure of Dr Rajan, and particularly after Demonetisation and GST strikes, the NPA figure rose astronomically with a two or threefold jump. And interestingly, much media attention is on the absconding of a few Mallyas, or Neeravs, but more than 40 such rogue defaulting borrowers, absconded since 2016, in a very planned manner. So, the Bharatiya Janata Party (BJP) agenda is very much clear, they are least interested in recovery or restoration of health of ailing industry, on the contrary they are up to the job of rescue and salvation of defaulters. That is why, Dena Bank, a Gujarat culture Bank, robbed by Gujarati Banias, in collusion with political leaders and executives, has been dumped to Bank of Baroda, another Gujarati dominated Bank, to take care of their brethren, and confuse the two into one intricate mess. Vijaya Bank, just out of PCRA, and recovering steadily, has been nailed down to extinction. The intentions are clear, in the name of structural reforms, the target is to destroy the very structure.

No wonder, the very solid structure of the domestic economy suffered irreparable jolt as a result of so-called demonetisation, and GST, now the target is the Nationalised Banks. The tirade against State run Banks, is very much in keeping with their agenda of promoting favourite group of Cronies, like Ambani, Adani etc. at the cost of all sound state-run units. A demonetisation had no effect on corruption or counterfeit currency, and GST only helped ruining the small and MSME group, to make room for Chinese digital platforms and commodities to flood the domestic market, so is this ill-conceived surgical strike of Bank mergers, is going to finish Nationalised Banks, to make room for free play of Global finance market operators, in the medium and long run.

The PCRA group Bank managements have been asked by the ministry of Finance to sign MOU with respective staff and Officers Unions, that their, non-basic financial benefits, additional or fringe benefits, will remain suspended till the restoration of Banks' health. Now this is a clear conspiracy, because, non-performing asset problem, is not only India's own problem, even big size and economies of China, and major western developed countries including Russia, are reeling under the same problem, and to hold the workers at receiving end for a situation to which their contribution may be minimal, exposes another BJP agenda to attack the organised work force. This merger, in a moment when wage negotiation bi partite talks are in progress, and Pensioners are demanding reforms in Pension, this aimless merger programme, is a frame to distract and divert the attention from concrete issues to some abstracts. The conspiracy is also against the Banks that in spite of all odds, are showing consistent good results. Bank of Baroda, has been consistently performing and comfortable profit earning Bank, they are now burdened with the NPA of Dena Bank. The history of Bank mergers in India shows, instead gaining in terms of business, merger always weakened the strong, and the gain in terms of size is nullified by absorption of others' weakness. The State Bank merger example is an eye opener, after the merger, it had to deduct erratically, miscellaneous charges from depositors' accounts to register income, but finally the balance sheet went into red. Mr Jaitley and his aides would be happy if Bank of Baroda follows suit, that is their target to ruin and destroy, and their next target might be Union Bank and Canara Bank, the other two profit earning mega entities.

Independence and autonomy of Nationalised Banks,is a myth, it never exists, on the contrary, Banks are always used as tools for personal gains and vote Bank politics. The NPA problem is nothing unique to India, it is a global phenomenon, corollary to Global crisis. So, to hold the Banks as culprits, is the part of overall conspiracy, to save and protect the rogue borrowers. As per report submitted to the Parliamentary Committee, Dr Rajan made it clear that he had submitted a list of wilful defaulters, to Prime Minister's Office, but results are not known yet. Not only that the matter could never have surfaced, unless Rajan had made it public. So the intention is very much clear, failure on all fronts, domestic, foreign, defence, finance, being exposed in big scams, this is a political strike to distract attention and direction from core issues. But ultimately, like Demonetisation or GST, it is also a heinous strike on the people of the country, as common people always park hard earned money in Nationaliased Banks and have full faith in Nationalised institutions, despite all odds.

Vol. 51, No.18, Nov 4 - 10, 2018