Privatising PSBs To Patronise Robber Barons? -Part2
In the first part, we saw how banks across the globe fared. But the main question is: how did leading private banks in India fare? Three lenders stand out: Global Trust Bank, ICICI Bank and Yes Bank.  
 
Global Trust Bank, the Ramesh Gelli and Jayanth Madhab sponsored new generation bank, was touted as a new star when it was inaugurated in 1994 by Dr Manmohan Singh, then as finance minister. In less than 10 years, it collapsed; the State-owned Oriental Bank of Commerce was mandated to acquire GTB in 2004 to safeguard the depositors. It took three years for OBC, then known for its efficiency to absorb the shocks of a bail-out. And nothing really happened to the promoters.
 
ICICI Bank was a commercial bank floated in 1994 by Industrial Credit & Investment Corp of India Ltd, a development finance institution (DFI) in the joint sector established in 1955. As it expanded its business, there was a reverse merger of the parent with the offspring: the new entity continued to carry the name ICICI Bank but became a ‘universal bank’ undertaking, among others, the functions of a DFI as well. In the recent past, ICICI has come in for critical public scrutiny. Two activities need to be referred here.
 
One is the scheme of cross-selling of insurance and mutual fund products by ICICI to its customers. (Read: Insurance Cross Selling: Bank Officers Want Restriction on Targets, Pressure for Sales—large PSBs like SBI were also involved).  Many senior citizens were conned into buying unwanted insurance policies. The staff had targets to meet, as in the case of Wells Fargo Bank.
 
The second: the Bank’s managing director (MD)and chief executive officer (CEO), Chanda Kochhar allegedly flouted corporate governance rules while sanctioning loans to certain corporates, despite a likely conflict of interest. She had to leave her job and is now under investigation by the Central Bureau of Investigation (CBI).
 
Yes Bank was floated in 2004 by Rana Kapoor and Ashok Kapur. After the tragic death of Ashok Kapur, the first CEO in 2008, Rana Kapoor took over the reins. Mr Kapoor wanted the Bank to be driven by ‘an animal spirit’ and, in 10 years, it became one among the top-5 private banks of the country. How did it achieve this?
 
When the economic downturn began after 2016 and all banks were hit hard, Yes Bank’s advances grew exponentially. Between 2014 and 2019, they shot up five times from Rs55,600 crore to Rs2,41,500 crore, when the industry growth was between 10% and 12%. 
 
In March 2020, the Reserve Bank of India (RBI) brought Yes Bank under a moratorium due to its excessive bad loans. The State Bank of India (SBI) stepped into bail the Bank out by contributing Rs10,000 crore to its capital. Rana Kapoor was arrested by CBI on charges of money laundering and corruption while granting credit facilities.
 
Didn’t the regulators know the problems in advance? Reports are in the public domain that RBI did notice serious lapses in governance of the Bank and the domineering role of the CEO. The Bank had been granting loans to corporates who were already in the defaulters’ list of other banks. But the red flags were ignored.
 
Access to Financial Resources Gives Uncontrolled Power
In US, UK, Germany and Australia, despite robust regulations, enforcement, standards of governance and strong law, huge banks robbed the gullible customers and put the financial system under serious stress.  The banks’ internal controls were lax, the domineering CEOs could not be reined in by the boards and the regulators looked the other way when they had vital clues of the wrongdoings. 
 
They violated the laws on money laundering and regulatory requirements. The desire to accumulate wealth at the cost of ordinary customers and the society drove away all canons of banking. The bailout money from the governments was used as a golden parachute by the CEOs. Those who lost their livelihood and mortgaged houses had no relief. These are pointers to the risks an economy like India will be exposed to.
 
Access to huge financial resources bestows enormous power—power to influence policy making, to enrich yourself quickly and to silence dissent (the whistle-blowers). When the reins are with the democratically elected government it is accountable, at least in theory. When PSBs, like any other PSU (public sector undertaking), are sold, invariably the billionaires acquire them and get the power. India’s privatised banks may not be different from their counterparts elsewhere in the world. Our policy-makers can ill-afford to ignore that lesson. 
 
(This is concluding part of a two-part series)
 
 
(TR Bhat is former president of All India Bank Officers' Confederation (AIBOC) and former officer of Corporation Bank)
 
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    COMMENTS

    karan.kabirnagar

    2 months ago

    Government of India is saying that only four state owned PSU Banks would be in future. I would like to say that other PSU banks also should be merged in these four PSU banks. Remaining State owned PSU banks should be merged with PNB bank or with Bank of Baroda. No PSU banks should be privatised.

    m.prabhu.shankar

    2 months ago

    PSU Banks should not be privatised for the simple reason that anything that is not working with Govt management will work better if privatised is an outright lie.

    karan.kabirnagar

    2 months ago

    I opposed the process of privatised the PSU banks by the government of India. Because private banks owners/CEO/ Managing Directors looted the banks. Example are there, (1).Global trust bank which was founded in 1994,this bank failed shortly and merged in OBC PSU banks after all, (2) ICICI private bank also failed this bank is also looted by chanda kochhar CEO of this bank. (3) Yes bank which is private bank It's owners Rana Kapoor looted the money of this bank. After all State Bank OF India step to bail this bank. So in last PSU banks taken over all these banks. So why government of India is privatising the State owned PSU banks. So I request the honorable prime minister of India and Finance Minister Sita ramanan to stop the privatised of PSU banks. All employees working in PSU banks are selected through very tough competitions. This types of policies will effect on next general elections. So stop privatisation of PSU banks.

    karan.kabirnagar

    2 months ago

    I and my family, relatives. Known frends are totally oppose the privatisation of State run PSU Banks. Because all the government schemes for poor people of this country are run by the PSU banks. If government privatised the PSU banks then private owners will loot the banks slowly slowly and fled away. Examples are, Yes bank(Rana kapoor), ICI banks(chanda kochhar). So please stop privatisation of PSU banks.

    ssk.pab

    2 months ago

    It is not really the question of privatizing a bank or not. Private or public - a Bank is Trustee of public finance. This trustee has to be answerable to the REGULATOR. In theory yes, it is. But in practice it is the failure of the REGULATOR that lets the willfully defaulting Bank get off the hook.
    It is my personal experience that the regulating arm of the Regulator, winks at the default of he Bank that leads to the Bank taking the Public for a RIDE. Therefore the real question is - where is the self correcting mechanism of the REGULATOR that will enure that to start with, there is no wilful default of the regulating arm of the regulator itself?
    RBI IS WOEFULLY LACKING IT THIS AREA.

    jiten7879

    2 months ago

    we fully opposo privatisation of psu bank
    it not a sensible decision. it is psu bank by which india stands still at time of world recession.
    indian economy is growing because of psu bank only.will private bank consider poor and needy people.their aim will be profit making only.what happened of them.has Govt think over it..Govt only copy foreign policy.but it wil not suitable.in india
    Govt must think. and change their decision .of privatisation.otherwise govt may repent in next election.

    kalemohan

    2 months ago

    but what about co-operative banks?these are run by the politicians for personal gains and party favours. but poor common man is robbed.

    ssndeepmore89

    2 months ago

    Mergers of PSBs are a welcome step. Nevertheless, the long term solution lies in privatsation only. If not for the annual Government props, the Public sector banks would have collapsed & vanished decades ago. Today, the PSBs are no better than the co-operative banks that fail regularly. It's high time that the PSBs stop feeding on the taxpayer's money every year like a leech. Had the same money been distributed amongst the Pvt sector banks, they would have made to the top banks in the world.

    REPLY

    rashokan

    In Reply to ssndeepmore89 2 months ago

    Can you explain how the govt is propping up the PSBs? Do you know the process? It is PSBs who are funding govt at market rate (gsec rate) to govt which comes in the form of bonds and treated as capital.

    cvkakatkar

    2 months ago

    Good synopsis of the intentions of the barons.
    Look forward, to analysis of the Barons who control and intend to control smaller Banks, like CSB, RBL and LVB - who are regularly in share Market news.
    Finally its the employees and depositors whose life is at stake.

    karan.kabirnagar

    2 months ago

    Merger of state owened PSU banks is right steps of government of India. And there should be only two PSB banks which to be govern by the Government of India. Stop the privatisation of State owened PSU banks. Because this type of policies failed in America, Australia, and England in the time of economic crisis, because private owners of the Banks looted the banks and flew away from country. So stop privatisation of state owened PSU banks.

    Privatising PSBs To Patronise Robber Barons? -Part1
    After three rounds of mergers of 28 public sector banks (PSBs) to reduce their number to 12, the Union government is now planning to sell some of them.  The familiar cliché is that it is not the business of the government to be in business. With the non-performing assets (NPAs) going out of control, the PSBs are in a pretty bad shape.  The government has no money to strengthen their capital. Instead, if they are sold, the sale proceeds could help augment the resources of a revenue-starved government. The measure will help, it is argued, to make the banks turn around and give a push to economic activity.
     
    This is based on a premise that private ownership promotes higher efficiency. Is this premise borne out by facts? 
     
    A look at the conduct of a few financial titans during the recent years gives us a different story.  Advanced and emerging economies suffered heavily because of the questionable conduct of their large banks. Given below are a few instructive cases. (The facts quoted here are culled out from the reports and studies available in the public domain.)
     
    How Wells Fargo ‘conned the little guy’ in America
     
    Founded in 1852, the USA based Wells Fargo Bank (WFB) steered clear of the 2007-08 global financial crisis (GFC), acquired the struggling Wachovia Bank and , by the next decade, emerged, in terms of assets, as the third largest bank in the country. Several journals and consulting firms showered encomiums on the Bank’s leadership, its work culture and for being among ‘great places to work’. 
     
    Yet, a decade after the GFC, the can of its worms stood exposed.  In 2019, a US Congressional committee held it accountable for customer abuses from 2002 to 2016. In January 2020, WFB entered into a settlement with the US department of justice (DOJ) to pay $3billion as fine and agreed to be monitored for the next three years after which the prosecution could be dropped. This was in addition to the fines and penalties totalling about half a billion dollars already paid by WFB till then. 
     
    What were its misdemeanours? Between 2002 and 2016, WFB opened millions of customers’ accounts without their knowledge. It overcharged its borrowers, illegally took possession of cars and homes, failed to report suspected money laundering transactions and granted mortgage loans against fabricated property records. Its employees were pressurised to sell insurance policies of Prudential Insurance with which WFB had a tie-up. In the process, several malpractices, like purchasing policies without customers’ knowledge and authority, issuing and later cancelling policies and allowing them to lapse and issuing fresh policies, took place. It was reported that 70% of the policies lapsed in the first year of their being issued! All these were done to reach sales targets which in turn would fetch them incentives and bonus to the top executives.
     
    During the Congressional hearing, US Senator Elizabeth Warren in her searing address to the then CEO, John Stumpf summed up the stinking saga of the Bank:
     
    “You know, here’s what really gets me about this, Mr. Stumpf. If one of your tellers took a handful of $20 bills out of the cash drawer, they’d probably be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich. This is about accountability… You should give back the money that you took while this scam was going on, and you should be criminally investigated by both the department of justice and the Securities and Exchange Commission.”
     
    Warren Buffett’s Berkshire Hathaway was WFB’s largest shareholder with 7.82% shares. Mr Buffet had to face embarrassing questions from an intrepid shareholder in Berkshire Hathaway’s shareholders’ meeting held in May 2019.
     
    Between 2016 and 2020, Mr Stumpf and his successor, Timothy Sloan relinquished their jobs and returned substantial part of the bonus they had received for their services. The Bank fired over 5000 employees for their acts, although they were under pressure to reach the sales targets. 
     
    “Wells has come to symbolise all that is wrong with corporate America. It conned the little guy,” wrote The Economist in June 2019. 
     
    Australian Banks Undermine Financial Integrity
     
    Australia’s four big banks, namely, Commonwealth Bank, ANZ, National Australia Bank and Westpac control as much as 80% of the country’s financial business. In February 2019, the high-powered Australian Royal Commission on Banking (ARC), after a year-long enquiry brought out a damning report about these banks. Their conduct seriously undermined Australia’s financial system.  
     
    Why were they indicted? The ARC zeroed in on the following issues:
    They collected hidden fees, charged customers for non-existent services, debited charges to the accounts of the dead, gave advice to customers to invest in underperforming mutual funds, sold junk products to the poor and the mentally challenged, breached the country’s anti-money-laundering law and created mortgages on non-existent properties. Westpac, the second largest bank, had violated anti-money-laundering and counter-terrorism financing laws 23 million times during the period. Millions of customers were exploited and some financially ruined by the banks. 
     
    The ARC concluded that the banks were driven by greed. Its observations are eye openers:
     
    “Having lost the trust of the Australian people, we must now do whatever it takes to earn that trust back. To move from a selling culture to a service culture, there is much more work to be done in every bank. But every bank is determined to find the problems, to fix them and to pay back every penny.”
     
    Royal Bank of Scotland Goes Under
     
    United Kingdom’s Royal Bank of Scotland (RBS) had a history of 300 years. In 2008, it suffered an astounding loss of £24 billion and the government bailed it out by pumping in £45 billion -that was the largest corporate rescue ever.  It was a bottomless hole. In July 2020, RBS merged itself with NatWest group (earlier known as National Westminster Bank); about 18,000 employees lost their jobs.
     
    Before the GFC, RBS took over National Westminster Bank, then notorious for its inefficiency. This move enabled it to become the biggest globally, although for a short while. The CEO, Sir Fred Goodwin, earned a reputation as a turnaround architect. But therein were sown the seeds of its virtual collapse.  
     
    It overexposed itself to sub-prime mortgages to reach targets; treated its small customers unethically; acquired ABN Amro Bank without due diligence; the leadership was arrogant and the board failed in its fiduciary responsibility. Returns on equity became the driving force rather than building asset quality.  The internal supervisory and control systems failed to do their job. Sir Fred was stripped of his knighthood.
     
    The chairman of UK’s financial services authority, which investigated the irregularities, said in his report released in December 2011:
     
    “RBS’s failure in October 2008 has imposed large costs on UK citizens. To prevent collapse the government injected £45.5bn of equity capital: that stake is now worth about £20bn. But this loss is only a small part of the cost resulting from the financial crisis. The larger costs arise from the recession which resulted from that crisis, within which RBS’s failure played a significant role.”
     
    Despite the government’s bailout, RBS could not turn around and, ultimately, NatWest Group, the holding company of the bank which was acquired by it, took over the sick giant in 2020 July. 
     
    Deustche Bank, another ‘Lehman Brothers in the Making’?
    The 150-year-old Deustche Bank (DB) is the largest bank of Germany and is among the top-10 banks globally. It has assets worth a trillion dollars, operates worldwide and had about 100,000 employees (in 2016). 
     
    With all that strength, between 2009 and 2018, DB lost $14.8 billion in market value. A proposed merger of Commerzbank of Frankfurt was called off.  In 2019, it worked out a plan of restructure to resolve its financial woes. It announced closure of its equities and trading operations, cut back on investment banking and shed about 15% of its staff worldwide (including India).
     
    In 2016, several financial publications and analysts warned that DB could be a new Lehman Brothers in the making and cause serious instability in the global financial market.  What led to this crisis?
     
    It was accused of money laundering, triggering tax raids at its German headquarters in 2018 and had to cough up huge penalties for the offence. In 2015, it was involved in LIBOR scandals and was heavily fined by the US and the British authorities. In 2017, it entered into a $7.2 billion settlement with US DoJ for its involvement in contaminated mortgages. It had already spent more than $13 billion on litigation. 
     
    Ukraine’s ‘PrivatBank’ Nationalised
     
    Ukraine was part of the erstwhile USSR. After the breakup of the Soviet Union in 1991, Ukraine became independent.  As part of its transition from a controlled economy, many measures were taken by the Ukrainian government.  In the financial sector, private sector was allowed entry. The first bank to be founded was PrivatBank in 1992. Over years it grew in size, in its reach and in terms of the variety of services provided. By the second decade of this century it became the biggest private sector bank in Ukraine. It was part owned by Ihor Kolomoisky, a billionaire oligarch with huge stakes in different sectors.
     
    In December 2016, PrivatBank was nationalized. The reasons: the bank’s imprudent lending policies led to loss of its capital. About 97% of its loans had gone to companies owned by the main promoters. Its failure would have caused severe economic crisis. With 20 million customers which included 3.2 million pensioners and 1.6 million socially vulnerable households, any failure of the Bank would have been disastrous. 
     
    International Monetary Fund, which backed the Ukraine’s decision, commended the measure as an ‘important step towards safeguarding the country’s financial stability’.
     
    (Tomorrow we will see what is the scenario in India)
     
    (TR Bhat is former president of All India Bank Officers' Confederation (AIBOC). I was not President, I was a Joint General Secretary (1995-2009)
     
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    COMMENTS

    karan.kabirnagar

    2 months ago

    Excellent Article About Privatising PSBs to Patronise Robber Baron's? -part -1

    karan.kabirnagar

    2 months ago

    All the 12 Twelve State owned PSU banks should be merged. And there should be only three main State owned PSU banks. And government should raise capital of these banks make economicly strong. No state owned PSU banks should be privatised in future. Stop privatisation.

    m.prabhu.shankar

    2 months ago

    Excellent Article

    REPLY

    karan.kabirnagar

    In Reply to m.prabhu.shankar 2 months ago

    Very good

    jayaramamin

    2 months ago

    The reason for poor corporate governance/corruption is our judiciary. If we build our Judicial system, the corrupt politicians, fraudulent leaders in Govt and Corporate institutions will get punished. If there is lack of fear, then more and more crimes will get created. Our education system is also not helping...as more n more IIT/IIM/ other Top engineering/management institute students are doing frauds...Even our IAS, IPS is a big problem...What we created after independence needs a complete make over...If this is not done immediately, then good and bright students who want to live ethically will leave India. We have created a system where only crooks thrive..I have heard a famous fund manager saying many times that 90% annual reports are cooked in India...all this makes a ethical living very difficult in our country and more and more youngsters are getting into short cuts..We need to start the change from Judicial system, then education, then IAS/IPS..

    Sanjeev B

    2 months ago

    "What do you do?"
    "I work for the Mafia ... er sorry ... a Bank (insert UBS, DB, HSBC, RBS, WFB, Westpac, apna PNB, etc etc"

    The shocking part is that there is no stigma attached to these brands or to being their employees. You could be abetting crime of the highest order but still be not just socially acceptable, but socially desirable.

    This is white collar crime of the purest form.

    hamungel

    2 months ago

    Very Well-Written First Part. Waiting for the Second Part.

    karan.kabirnagar

    2 months ago

    Only the way to merged all the banks in one or two banks . Only there should be two main government Banks. Stop Privatisation of banks, because there are many example of looting the banks in, America, Australia. England in financial crisis these country Privatisation of government banks but failed and all banks were looted by private owners.

    karan.kabirnagar

    2 months ago

    Privatisation of State owned PSB banks is not a right decision of Government of India. In this way Private owner will loot the banks and left India and will go abroad and settled there. So stop the process of Privatisation.

    pradeepsaha311

    2 months ago

    In india private sector is only chor and nothing else. They will either loot shareholders, or banks or their partners and run abroad in asylum. We all want to punish PSBs because catching thief is not our motto as all of us admire chors and think why we cannot do what they did.

    Now a days unsolicited paid articles are doing round as everybody wants to loot PSBs by becoming owners rather than becoming borrower.

    aditya007374

    2 months ago

    Article written by a typical chor of PSBs.

    REPLY

    siddhartha.chatterjee

    In Reply to aditya007374 2 months ago

    Exactly. These people had their fun while making their customer's life hell. One look at how SBI branches behave if you just go to get a demand draft illustrates the matter. I am not comfortable maintaining these white elephants with my tax money, let them get sold. Some will go under and that will be for better. At least some people have to work for a living now.

    More Trouble for Mumbai International Airports as SBI Likely To Appoint Forensic Auditor
    More trouble is brewing for GVK Infrastructure and Power, including Mumbai International Airports Limited (MIAL), after the action by enforcement agencies as the lenders are in the process of appointing a forensic auditor. Top banking sources revealed that this is imminent after the PWC (PricewaterhouseCoopers) walk out.
     
    GVK Infrastructure and Power, including Mumbai International Airports Limited (MIAL) have been facing action by the enforcement agencies, CBI (central bureau of investigation) and ED (enforcement directorate) . The CBI filed a chargesheet on 27th June while ED filed its charge-sheet on 7th July.
     
    Based on RBI's (Reserve Bank of India's) PWC has recentlyDirections on Frauds, dated 1 July  2016 (updated on 3 July 2017), State Bank of India (SBI) is believed to be appointing Deloitte as the forensic auditor to check the accounts of MIAL for the past 10 years. MIAL is operating the Mumbai Airport in a joint venture with the Airports Authority of India.
     
    PriceWaterhouse Coopers has recently submitted its resignation as auditors from GVK Infrastructure and Power and GVK Airport Developers.
     
    PWC resigned as statutory auditors following the CBI and ED raids in MIAL. PWC in a letter has cited the recent events at MIAL to ascertain the appropriateness of continuing as statutory auditors in the company.
     
    PWC said in the letter to the audit committee of the companies that it is waiting for explanations and information from the company to finalise the audit for financial statement of the year ended 31 March 2020. The auditors said the company had still not provided the details which is reiterated in their resignation letter.
     
    While the crisis regarding GVK and MIAL is unfolding, there are reports that the Adani group is looking to acquire control of MIAL with a 51% stake.
     
    Adani and GVK have been locked in a legal tussle as Adani has been eyeing the Mumbai airport company. In the MIAL shareholding structure, GVK holds 50.5%, while 26% holding is with Airports Authority of India and 23.5% is with South African companies, Bidvest at 13.5% and Airports Company South Africa at 10%.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    dunbaka

    2 months ago

    GMR activities should also be probed.

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