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?
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
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.
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.