On 19 July 1969, VV Giri, the then President of India, promulgated an ordinance nationalising 14 private banks on the recommendation of the then Prime Minister Indira Gandhi. Mrs Gandhi declared through All India Radio (AIR) the objectives of nationalisation of these banks: wider territorial and regional spread of branch network, better mobilisation of financial savings through bank deposits, reorientation of credit deployment in favour of small and disadvantaged classes all along the production spectrum, removal of control by a few business houses, conferring of a professional bent to bank managements. In addition, provision of adequate training and reasonable terms of service for bank staff.
It is important to note that a few major reports were responsible, apart from many members of Parliament demanding nationalisation in the Parliament sessions. PC Mahalanobis Committee on distribution of income noted that the 10% of the population had cornered as much as 40% of the income in 1960. Monopolies Enquiry Commission found that there was high concentration of economic power in over 85% of industries in 1964.
RK Hazari’s Report to Planning Commission in 1967 noted, “So long as many of the major credit institutions are under direct control/ and of influence of big Industry and unless the linked control of the industry and banks in the same hands is snapped, by nationalisation of banks, reducing
concentration of economic power with a few was not possible”
One more important factor for nationalisation was that between 1947 and 1951 there were 205 bank failures. The number of banks in 1951 was 567, which came down to 91, as private banks were not run efficiently.
If we analyse whether the objectives of nationalisation were achieved, the answer is a big, yes. Number of rural branches increased to 35,000 in 1990s from 1,443 in 1969. The share of rural branches increased to 58% from 18% and most of them were in unbanked areas.
Between 1969 and 1987, rural credit as a proportion of total credit went up from three to 15%. Rural deposits went up from 6% to 15%. Credit Deposit Ratio (CDR) increased up to 60% from below 40% and in 1984, it was about 70%. Under priority sector lending, 40% of the credit had to go to agriculture, allied activities, small scale and cottage industries. Within this 40%, the share of agriculture was 18%. The number of agri borrowers, which was just 1 million in 1970, went up to 30 million in 1990. About 42% of them were small and marginal farmers. Around 1% of total credit went to weaker section at 4% simple interest.
With the nationalisation of six more banks in 1980, the control by business houses drastically came down. Great bankers like RK Talwar as Chairman of SBI stood up against political interference. Massive recruitment of probationary officers and rural development officers took place.
Wage settlements brought some uniformity of scale of pay and service conditions and training. Institutions like RBI Staff College, National Institute of Bank Management, and State Bank Staff College came up for training the staff.
The most interesting fact is the concentration of wealth came down. From 20% of wealth with 1% of the population in 1940, the figure was came down to 6% in 1980. In 1980, the bottom 50% captured 28% of total growth, which was faster than the average, according to author Thomas Picketty.
All this changed from 1991 when the neo liberal policies were introduced under dictates from the International Monetary Fund (IMF) and the World Bank (WB).
Credit authorisation scheme seeking permission from RBI for loan over Rs1 crore was removed.
Priority sector lending norms were diluted and not strictly monitored.
Recruitment in banks was stopped for 10 years followed by a VRS Scheme under which 1.34 lakh staff left in just one year.
Monopolies and Restrictive Trade Practices (MRTP) Act was removed.
Small loans reduced and big loans increased.
In the name of reducing non-performing assets (NPA) massive write off is taking place mainly to corporate borrowers. In past four years alone Rs4 lakh crore have been written off.
Through IBC and NCLT, more write offs are taking place in the name of haircut. Reliance Industries bought Alok Industries (worth Rs29,500 crore) at 83% haircut. Vedanta (Sterlite fame) bought Electrosteel at 60% haircut.
The Prime Minister says, “Public Sector was born to die. Either allow to die or privatise”
RBI Governor, Niti Ayog Deputy Chairman and Chief Economic Advisor all talk of privatisation.
In fact, Aravind Panagraiya stated (sitting in US) that all political parties in their election manifesto should state that public sector banks (PSBs) would be privatised.
The policy changes since 1991 have increased loans to rich and written off their loans at the cost of small borrowers. So, let us not blame the arrows instead of the shooter.
In 1991, when the policies were changed 35.9% of the credit went to borrowers with less than Rs2 lakh and majority of them less than Rs25,000. This covered 99.3% of the total borrowers. At that time, only 577 borrowers had credit limit above Rs10 crore and their limit was only 10.8% of total credit. But in 2017, the credit limit of less than Rs2 lakh is only 6.9% of the total credit but 11,643 borrowers with credit limit above Rs100 crore have availed 36.18% of the credit.
With these changes, in 2000, the top 1% owned 20% of the wealth and by 2016; they own 58.4% of the wealth of the county. The number of billionaires is steadily increasing. Last year the wealth of 1% went up to 73% but the bottom 50% (which is about 67 crore) saw only 1% growth.
Reliance has become the biggest borrower with Rs1.76 lakh crore in 2016 (Mukesh Ambani) and Rs91,000 crore (Anil Ambani). Surprisingly the government has allowed Reliance Payment Bank with SBI as junior partner with a 30% share. Many business houses are ready to take over banks at throwaway prices.
The staff strength of PSBs is not growing in tune with business leading to deterioration in service making customers angry. RBI has stopped monitoring service charges, which has led to increase in service charges by most of the banks. Permanent bank staff are outsourced. There are about 5.60 lakh Business Correspondents (BCs) without any job security.
People have started understanding the problems. All India Bank Officers Confederation has launched a Peoples Parliament for Development to contact the masses for a dialogue. Kerala is launching a Movement for India’s Financial Independence involving almost all Political Parties, Trade Unions and common people. Kolkata is going to have a similar programme on 28 July 2018.
Due to the resistance of the ban unions and the mass response from people, the Government is going to withdraw the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill). It is a small victory for the masses.
However, the large battle is on. Prevent privatisation of public sector banks and allow them to continue to pursue the goals of nationalisation by reorienting the policies towards majority instead of miniscule minority who are cornering bank loans and accumulating wealth and thus increasing income-inequality.
(Thomas Franco is Secretary General of All India Public Sector and Central Govt Officers Confederation)