The contentious issue of bank privatisation has once again come to the fore after business newspapers reported that the Union government is keen on introducing an amendment in the upcoming monsoon session of parliament to smoothen the path for the government to make a complete exit from the public sector banks (PSBs) that are being put up for sale. https://thewire.in/banking/public-sector-banks-privatisation-reservation-taxes

A note released by the People’s Commission on Public Sector and Services said, “A significant portion of [SC, ST and OBC employees] occupy managerial positions in those banks. Reservations in employment need to be viewed, not merely from the point of view of the creation of employment opportunities alone but, more importantly, from the larger socio-economic benefit of empowering and uplifting them.”

The note said that privatisation of even a single PSU bank would not only create uncertainty regarding the conditions of service of the existing SC, ST and OBC employees (as also similar uncertainty in the future of all other employees) but also “permanently close the constitution-given opportunity for new recruitments to that extent”.

by Kaushal Shroff

07/07/2022

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Can an RBI Board of Director get away calling Public Sector Bank Executives Scums? Random Reflections   By Thomas Franco | May 23, 2022 https://www.cenfa.org/can-an-rbi-board-of-director-get-away-calling-public-sector-bank-executives-scums/

Wikipedia describes Mr S.Gurumurthy as an RSS ideologue, power broker, chartered accountant, columnist, and political and economic analyst.

The intention of the statements of Mr S. Gurumurthy should be analysed and understood carefully. One, he wants to divert attention from the failures of the government and create controversies to divert the attention of the people. Two, he wants privatization of banks but will not call it privatization. He is angry that Unions and Associations are strongly opposing it. In spite of announcing in the last budget 2 banks could not be privatized yet. Three, they want the reservation policy to go. With privatization there won’t be any reservations in jobs. Four, even after 8 years in the government, they want to keep blaming the previous government and hide the write-offs to corporates through the National Company Law tribunal. Five, they want to weaken the Unions and Association in the banking sector by saying the employees are paid less.

Today, the economy is inching towards a crisis. RBI and the government have miserably failed in managing the economy. The demonetization, GST, and the lockdown without warning have taken a toll on the people. And instead of giving relief, we keep taxing the public. RBI’s own decisions like freeing interest rates for Micro Finance Institutions, Co-lending by banks in collaboration with Non-Banking Finance Companies (NBFC) such as Adani Capital, and forcing banks to lend more to NBFCs who can charge any rate to the borrowers, are affecting the majority of the lower and middle-income groups. The after-effects will be seen sooner or later. Yet, Mr Gurumurthy talks of Swadeshi but practices Videshi.

Mr Gurumurthy says the salary of public sector banks is lower than the private sector. This again is not true. On the cost to company basis, it is even better.

Instead of warning Public Sector Banks, Mr Gurumurthy should look at the causes and make a course correction, which RBI can implement. Some of them are:

Implement the decision of RBI taken in 2017 to bring a ceiling of Rs.10000 crore to a corporate as a loan. As recommended, let them go to the market and mobilize funds.
Stop interfering in the affairs of banks and provide them with a certain autonomy. Remove RBI and Finance Ministry nominees in the boards of public banks. Instead, appoint real experts.
Implement the provisions of the law and appoint officer directors and employee directors in public banks. They can be the watchdogs.
Shift focus to small loans directly and not through NBFCs. Stop Co-lending, which is going to be a disaster and fraud. Increase direct lending to agriculture, small traders, SMEs, micro-enterprises, SHGs, and students for education and self-employment.
Announce that there will be no privatization of banks and increase their branch network and staff. Convert the Business Correspondents into regular employees. Bring schemes like the Integrated Rural & Urban Development Programmes.
Provide better salary, pension (Revert to OPS from NPS), updation of pension, perks and work-life balance to bank employees. Banks will perform better. Honest People are not afraid of the Central Bureau of Investigation (CBI) and Central Vigilance Commission (CVC).

Should Corporates Own Banks? Should Corporates Own Banks? – Centre for Financial Accountability (cenfa.org)  By Thomas Franco | March 4, 2022 

“It would be difficult to undertake credit planning unless the linked control of Industry and Banks in the hands is snapped by Nationalisation of Banks,” said R K Hazari in the R K Hazari Committee’s report on Industrial Planning and Licencing Policy in 1966.

In 1993 with the liberalization policy and the conditions implemented by the World Bank & IMF, banking was extended to private players.

In 2013, Tata Sons, Bajaj Fin serve, Aditya Birla Nuvo, Reliance Capital were among 26 applicants along with India Bulls, and SREI Infra which are now in the NPA mess.

After 2014, things have further changed. The Corporates have found an easy entry into banking through Non-Banking Financial Companies.

As per the Banking Regulation Act, before granting any licence, the RBI requires to be satisfied that the following conditions are fulfilled.

that the company is or will be in a position to pay its present or future depositors in full as their claims accrue;
that the affairs of the company are not being, or are not likely to be, conducted in a manner detrimental to the interests of its present or future depositors;
that the general character of the proposed management of the proposed bank will not be prejudicial to the public interest or the interest of its depositors;
that the company has adequate capital structure and earning prospects;
that having regard to the banking facilities available in the proposed principal area of operations of the company, the potential scope for expansion of banks already in existence in the area and other relevant factors, the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth.

In November 2020, the Reserve Bank of India released a report of its Internal Working Group (IWG), which recommended that large corporate/industrial houses be permitted to promote banks,

Put together, the recommendations make way for corporate entry into banking, which has not been possible since the bank nationalisation of 1969

The risks mentioned in the IWG report such as misallocation of credit, conflicts of interest, extensive anticompetitive practices, risks relating to intra-group transactions, connected lending, circular lending, moral hazard risks, and the risk of contagion will come true.

In the meanwhile, the poor, low-income, and middle-income customers, who constitute the majority, will have to depend on NBFCs, the new Shylocks who will charge huge interest for loans. Income inequality will further increase. The oligopolies will not only control the financial system, but also the political system. Democracy will perish!

The government's selling spree is on full swing with the LIC IPO being doled out soon, and to ensure its success the Govt has even tweaked some part of the FDI policy

https://www.moneycontrol.com/news/business/ipo/lic-ipo-drhp-likely-this-month-20-fdi-cap-being-proposed-7936841.html JANUARY 14, 2022  To facilitate disinvestment of the country’s largest insurer, the commerce and industry ministry has introduced some changes in the foreign direct investment (FDI) policy

"The clearance for foreign stakes in the mega offering would not just permit global funds to participate, but also allow them to buy more after the exchange listing. Regulators made other moves late last month, including tightening rules governing share sales by anchor investors." The success of the public issue is crucial for the government to inch closer to its Rs 1.75-lakh-crore divestment target for the fiscal 2021-22. So far, only Rs 9,330 crore has been mopped up through PSU stake sale.

(comment in Finance Matters, cenfa.org.. the question remains, does India need to sell its golden goose? There are several lessons to be learnt from the previous roll-out of National Monetization Policy. At the same time, huge funds continue to be pumped into various schemes, the latest being the ADB's 350 million loan to AMRUT 2.0. It is high time we prioritise what the country really needs, see beyond the rhetoric and listen to the demands of its huge young population facing massive  nemployment, inflation and rapidly being pushed to poverty

Selling the Golden Goose for a Pittance – Does our FM know what LIC is? By Thomas Franco | January 15, 2022 LIC is a golden goose which is giving golden eggs regularly to the economy, development projects and providing social security to the majority of the marginalised people of this country. Almost one third of the GDP is connected to LIC and almost one third of the budget of the GOI is financed by LIC. The FM has stated that the listing would bring discipline while giving retail investors an opportunity in wealth creation. She doesn’t say where the indiscipline is. It is her Ministry which is overseeing LIC and her Secretary is on the board of LIC. The so called retail investors in India are not even 3% to whom she wants to give wealth.

There is so much talk of efficiency of the private sector. The IRDAI Annual Report for 2020-21 has shown that the operating expense of LIC is 8.68% of the total premium income. The same for private sector is 11.72%. LIC has been serving larger number of policies at an economical cost.

All this will go away with privatisation. Shareholders will only insist on more profit ignoring the social security needed for the larger majority.

<https://www.downtoearth.org.in/blog/governance/covid-19-a-generation-interrupted-80945>