51st Anniversary of Bank Nationalisation Has All Stakeholders Edgy and Unhappy, Time for Government To Rebuild Confidence
19th July marks the 51st anniversary of bank nationalisation. For decades there were mixed views on whether this was a smart move that led to explosive growth or a bad one, which only laid the ground for the loot of public funds through the neta-banker-businessmen nexus. 
 
This year though, an outpouring of anger and frustration of both customers and bankers marked the day, and both have valid reasons to be upset.  
 
While bank unions vociferously support bank nationalisation, the monumental loan write offs year after year, followed by periodic recapitalisation, shows relentless plunder of public money. Here are numbers put out by AIBEA (All India Bank Employees Association) in a press release to mark nationalisation. Moneylife has also written about how bank claims about continuing the recovery effort after the write-off is laughably hollow.  
 
 
The loan write-offs are invariably made good through unconscionable charges levied on customers, and the recapitalisation of banks by the exchequer—that is our money. Meanwhile real interest on bank deposits have turned negative and are below the inflation rate. And yet, since bank deposits represent the savings of the middle-class and the affluent, our political establishment does not care about their issues. 
 
What is worse, the bailout of public sector entities by the exchequer now extends to insurance companies as well. The union cabinet has just cleared a Rs12,450 crore bailout of three public sector general insurance companies. How long can the taxpayers of India bear the burden of dubious lending practices? 
 
Customers’ Distress
From the customer perspective, especially senior citizens, a fragile banking system leads to fears of institutional failure and the threat to their life savings, the bank deposits.  They are also concerned about a slew of ever increasing charges that are extracted for what used to be covered under routine banking services. Another issue is poor grievance redress, especially for victims of technology fraud (when they are not at fault) or mis-selling of bad financial products and insurance by bank relationship managers. 
 
These fears got exacerbated after Mr Shaktikanta Das’s speech on 11th July at a State Bank of India (SBI). Shocks to the financial system dubbed as ‘once in a lifetime events’ seem to be more frequent than even ‘once in a decade’, said the RBI governor, while also pointing out that the Covid pandemic “may result in higher non-performing assets and capital erosion of banks”. 
 
At the same conclave, he promised a ‘resolution’ of the fraud-hit Punjab and Maharashtra Cooperative Bank (PMC Bank) but said he needed “legislative backing to have some kind of a resolution corporation”. This suggests a revival of the Financial Sector Development and Regulation (Resolution) Bill, 2019, the details of which Moneylife had scooped in December 2019. The bill promises to eliminate a ‘systemic vacuum’ by creating a framework for resolution of financially distressed entities through a Resolution Authority (RA) and has yet to be introduced in parliament. 
 
The RA will indeed give RBI much needed flexibility, but until we see proof of significantly improved supervision (which the governor also promised), the spectre of institutional failure remains. Here again, the governor said that the new FSDR bill has eliminated the dreaded ‘bail-in’ provision that led to a nationwide furore in 2017 when a previous version of the bill was introduced in parliament. It was eventually withdrawn in August 2018. 
 
The governor is technically correct. Instead of an explicit ‘bail in’ provision, the new bill empowers the RA to “cancel or modify’ the failed institution’s liabilities barring those covered by deposit insurance. Although deposit insurance cover has been increased to Rs five lakhs (up from Rs one lakh), this will remain a matter of concern for savers, especially senior citizens who live on interest earned on term deposits. 
 
The governor has promised better supervision based on market intelligence and he is personally very open to feedback. But RBI as an organisation has a pathetic record and has repeatedly been too arrogant to heed even explicit warnings by whistle-blowers. Until RBI can demonstrate its ability to ‘smell the distress’ and “initiate pre-emptive actions”, depositors have to be alert, prudent and spread the risk through multiple bank accounts, which has its own risks.
 
Depositors and borrowers are both distressed about the quality of service at banks and complain about lack of cooperation and empathy during the lockdown. But a look at the other side provides a different perspective. 
 
Bankers’ Burden
 
 
A bank is only as good and safe as the bankers who work for it. The biggest and safest segment of Indian banking continues to be public sector banks (PSBs) -- mainly because of the implied guarantee about our money. But their employees are among the most ignored, angry and miserable lot today.
 
Their concerns, as well as those of private sector bankers, are both urgent and valid, but barring one instance, their pleas on social media and through multiple letters from leading bank unions have not even been acknowledged. Here are some issues that need to be addressed if the government wants bank officials to play a role in the revival of the economy. 
 
Death, Safety and Violence:  Banks have been declared an essential service and have remained open through most of the Covid lockdown but are working with a heavily curtailed staff strength. This entails facing the risk of infection on their way to work, at work from co-workers and customers and worse facing the wrath of angry depositors when things are delayed. Data collated by a group of bankers indicates that at least 58 bankers have succumbed to Covid so far and over 1000 are infected. And yet, they are being forced to fight for basic rights. 
 
 
Bankers allege that they are forced to work without proper precaution or sanitisation, even after colleagues tests positive for Covid; they also claim that in most cases, there is no staff rotation policy for front office staff at branches, although they are most at risk. 
 
 
Bankers have uploaded photos and videos of attacks and intimidation by customers or local politicians. The only time when finance minister Nirmala Sitharaman intervened was after a furore on social media when a lady banker was badly injured after being attacked by a constable in Surat. Even in that case, there are no serious charges against the constable despite a complete video recording of the incident. In most other cases, bank officials become targets of customers’ frustration when they have no control over policies, decisions or even infrastructure. 
 
Medical Insurance: With so many bankers getting infected almost on a daily basis, medical insurance has become a seriously issue. Insurance cover for all PSBs (barring SBI) is part of the wage agreement negotiated by unions with the Indian Banks Association (IBA). But bankers claim that this does not cover the large amounts charged by hospitals for treating Covid and for all the important exclusions. 
 
This is borne out by a letter to RBI and the finance ministry by Mr Soumya Datta, General Secretary of the All Indian Bank Officers Confederation (AIBOC) on 6th June 2020.  He cites the example of a banker (from Indian Overseas Bank), who was charged Rs4.77 lakh by the hospital, but the insurer only reimbursed Rs1.85 lakhs, while the distressed officer had to find the means to pay Rs2.91 lakhs herself. 
 
Stunningly, as much as Rs2.5 lakhs disallowed was on account of the PPE kit used by healthcare workers. If bankers are forced to attend office as part of essential services and to work without adequate protection, it is stunning that they are forced to fight for full reimbursement of medical expenses when infected. 
 
The AIBEA says that insurance is part of the group insurance policy, which is part of the wage negotiation. Although there are caps for various employee grades, there is also a corporate buffer of Rs100 crore across bankers. This may have been okay in normal times, but bankers point out that it is inadequate during an unprecedented pandemic, especially when they are forced to attend office despite risks and hospitals are billing heavily for things that are not covered by insurers. 
 
Compensation on Death: Bankers believe they ought to be treated on par with health care workers, police and other essential services employees who have been assured of Rs50 lakh compensation in case of death due to Covid. At present, the life insurance cover for bankers is Rs20 lakhs, which many say is grossly inadequate, especially when Bank of Baroda has provided “an additional ex-gratia payment of Rs30 lakhs” taking the total compensation to Rs50 lakhs. A union leader tells me that even when the compensation is lower, it is coupled with compassionate appointment for kin, which many find more beneficial. 
 
These are issues that can be easily addressed and resolved through dialogue but have been allowed to fester at a time when the system depends on bankers. Isn’t it time for the finance minister and the RBI governor to engage more actively with the bankers? It will benefit all stakeholders. 
Comments
bala.shanbhag
1 year ago
I am a retired Banker. Yesterday, I had through whatsapp message commmunicated that the Bank Officials who are affiliatad to Unions, who are one of the Board of Diectros are responsible for NPA of loan accounts. Hence, there is no meaning in blaming Bank Management. I was a Zonal Chairman of Mumbai Unit of a Nationalised Bank.
I observed, Workmen/Officers' Directors come to Board Meeting, enjoy and leave without no responsiblity and crying foul in Public. It is a tragedy.

Though there are many Directors on Board, more details are available with the Employees and they have ample time to vet the proposal. Further, Bank Employees ( Officers ) are first stake holders of their Institution. Why they can not protect the interest of Bank. Where is their accountability to 'food giver' ?

Privately coaliation, publicly collission ! A big drama
vinoda
Replied to bala.shanbhag comment 1 year ago
Respectfully appreciate your opinion and perspective. Restores confidence. Welcome.
Meenal Mamdani
1 year ago
Excellent article as one has come to expect from Ms Dalal.

I would like to bring up one more point.

Indians have the habit of complaining loudly but will not lift a finger to bring about change. They expect some one else to do the heavy lifting while they sit on the sidelines mouthing wisecracks.

How many of the responses to the many articles in this newsletter offer any ideas about how to bring about change? Not even one. Many of the readers are reasonably well off, educated, have held important positions in private or public spheres, possibly retired with lots of time on their hands. They could hold a meeting of like minded people and see how they can put pressure on their bank managers to get answers to their questions.

No effort for change is painless and none are guaranteed success but it is worth trying. Now with Zoom even those of us who cannot be present physically may be able to participate.

Come on fellow Indians. Start a movement. This is the perfect time to put your anger to good use.
miabb7816
1 year ago
very relevant post though a section of media and politicians are clamouring for Privatisation of PSBs even after witnessing series of Private Banks failures and debacles and appearance of Public Sector Banks as white night...recent example of collapse of Yes Bank and Corrupt board and MD CEO Mr Rana Kapoor...However,it would have been much more appropriate to have the figure of so called efficient Private Banks figure of Write off during last decade....and share of Private Banks in financing top 12 NPLs which is 25% of the total bad loan in entire banking system...It is better to accept non availability of level playing field with Private banks and dreaded Politicians-Banker- Babu relationship in the functioning and management of Public Sector Banks....Ultimately in all ocassions the common Employees and customers at the receiving end....
ramaninv1953
1 year ago
Well written article.
hamungel
1 year ago
Well balanced article.
yerramr
1 year ago
One can sympathize with the Bank staff under the circumstances narrated. If the customers are revolting, it is because the bank staff just don't care for them. They are caring more for the machine in front of them. Customers have become unsure of their bank balances. They don't get response to their letters. The machine response is structured. The capacha never works. The tired customer on the net leaves cursing his fate. Controlling Authorities also stopped responding to the customers the same way.
Bad banking led to the bulging NPA book. This bad banking involved lending without due diligence; trusting the Balance Sheet more than entrepreneur; not inquiring the antecedents of the partners/directors of the Board before lending and not monitoring the account as required. Unsupervised and non-monitored credit is the reason behind the NPAs. They try to show evidence for monitoring through debit of inspection charges or charges for non-compliance of a client without visiting or discussing with the enterprises. The saga has to end somewhere and the Banks need a thorough clean up. Nationalization Day has lost its relevance because the financial inclusion still remains an unfinished agenda, with banks worried more about profits and capital than responsible social banking. Banks have to get back to banking, leaving off the universal banking tag.
kvrao42004
1 year ago
14 banks were nationalised on 19th July 1969(Saturday) and not on 10th July, 1969as mentioned in the feature. A good write up.
ganesanjaicare
1 year ago
you have mentioned problem for the bankers.what about common citizens because of the complete lockdown no income for those not having ration card or not eligible any subsidy and not benifited through direct benefit transfer.because of non transportation of mumbai local and not allowed to go out are suffering .they have to pay mobile eb wifi milk and groceries and rent and school fees.i request moneylife to takeup this issue and thre govt can arrange loan with 1 percent above reverse repo rate through aadhar number.Those people donot know whom to approach .they are not having proper emergency savings fund.
vinod_khatanhar
Replied to ganesanjaicare comment 1 year ago
Very True.
vinoda
1 year ago
Bankers at bank Nationalisation have rather taken three monkeys of Mahatma Gandhi depicting moral gestures —- see no evil, speak no evil, and hear no evil which was a gift from a Japanese monk named Nishidatsu Fuji. It would be a good gesture and natural justice on the part of AIBEA if they had also come out with the figures of Interest earned from the period in table from 2001 to 2019. My opinion - India needs a Monitor and Regulator /Ombudsman to analyze all recovery proceedings leading to Auction Sale of Immovable Assets.


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