Safeguard Public Sector Banking, Combat Anti-People Policies

During the last elections to the office of governors in America, Phil Murphy, who contested as a Democratic Party candidate in New Jersey, announced that if elected he would enact a law to set up a bank in the public sector. Immediately on winning the election, he formed the Public Bank Implementation Board for the purpose. It is reported that the above board has submitted a report in favour of establishing a government owned bank, highlighting the importance of delivering financial assistance including education loans to economically weaker customers. The model that inspired Phil Murphy to institute a government owned bank was the Bank of North Dakota, the only state owned bank in the United States, based in the state of North Dakota and governed by Doug Burgam of the Republican Party. Similar discussions are going on in several other states of America to set up banks based on the model of Bank of North Dakota, which has been functioning commendably for more than a hundred years surviving many bank crises. At a time when even the US is discussing the relevance of public sector banks very seriously, the rulers of our country are busy in amending the existing banking laws to facilitate corporatisation of the nationalised banks.

Prior to the last Parliament elections, two significant developments related to the financial sector took place. The first one was the pronouncement by Arvind Panagaria, chairman of the 16th Finance Commission and the first Vice chairman of NITI Aayog, that if voted back to power, privatisation of banks would be one of the top priorities of the third Modi Government. This statement was made when extensive discussions that projected a third term for Modi with more than 400 seats were going on in the country. Following this Finance Minister Nirmala Sitharaman too hinted that the new government would go for privatisation of PSBs. These pronouncements did not evoke any surprises as they came from the descendants of the erstwhile Jansangh, one of the political parties that opposed bank nationalisation back in 1969.

Government Policy Sans Security

The second development that transpired after the election process got underway was the transfer of ₹2,10,847 crore to the central government from the reserve fund of the Reserve Bank of India(RBI) without any "declared" directions from the former. This was the biggest transfer in history by the RBI from its reserve fund. It did not capture the attention of the public at all. As a result it was not subjected to any discussion even during the election time. The reserve fund is considered to be the profit of the RBI. Normally the fund is managed with utmost care by the RBI as it is actually the money for protecting the economy of the country. It is the practice to set aside a fixed portion of the profit of the RBI towards Contingency Fund and Asset Development Fund and this gets reflected in the central bank's balance sheets. The RBI, the constant and cautious watchdog of each and every developments in the financial sector, is maintaining the Contingency Fund for overcoming any unexpected crises that may befall the economy in future. In other words, the Contingency Fund is maintained for protecting the financial sector of the country. As per the policy followed by the RBI for a long time, it deducts from its profit the amount for its Contingency Fund and Asset Development Fund, from the remaining sum maintains ₹4 crore as reserve fund, and transfers the balance to the government.

However, from 30 June 2024, Contingency/Asset Development Funds were removed from the balance sheet and the amounts meant for these funds were also treated as part of the reserve fund of the RBI. This led to a huge increase in the amount to be handed over to the central government from the reserve fund. In short, the reserve fund, actually meant for safeguarding the financial sector of the country, is being handed over to the central government for serving its political goals. Faced with severe criticism against this move, the RBI has resumed the practice of appropriating sums for these funds, albeit in very small measures, but without showing them separately in the balance sheet.

In the five years from 2009-10 to 2013-14, ₹1,35,467 crore was transferred by the RBI from the reserve fund (At an annual average of ₹27,093 crore). This increased to ₹3,88,419 crore (Annual average ₹77684 crore) between 2014-15 and 2018-19 and further to ₹4,84,487 crore (Annual average ₹96,969 crore) in the period 2019-20 to 2023-24. Just before the end of the term of the first Modi government, the central government had approached the RBI with a request for transfer of ₹2 lakh crore from the reserve fund. The RBI refused to comply with the request and this had become the headline news at the time. With the return of Modi to power for a second term, the RBI was compelled to transfer ₹1,75,988 to the central government. This was followed by the resignation of Viral Acharya, one of the Deputy Governors of the RBI. All these incidents are worth remembering in the present context of transfer of record amounts to the central government by the RBI and bring to the fore the need for initiating an impartial investigation on the unbridled draining of the reserve fund during the last ten years.

Reduce The Numbers, Trim The Size, Then Put On The Block
The policy of the government with respect to the public sector bank(PSBs) is also similar. As many as 137 commercial banks are operating in the country under schedule 2 of the RBI Act. Out of these only 12 are in the public sector. 14 banks were nationalised in 1969. After the nationalisation of 6 more banks in 1980, the total number of PSBs went up to 28, including the SBI and its 7 subsidiaries. The number has come down to 12 today after mergers and amalgamations. More than 5000 branches have been closed as a result of mergers. As per the figures of the RBI the total number of branches of commercial banks functioning all over the country is 1,59,130. Among these 55,049 are rural branches and 44,900 are in semi urban areas. Even if it is acknowledged that all the branches in the above two groups are in Grama Panchayat areas, the total number of commercial bank branches in Grama Panchayats would be 99,949 only. There are 2,69,474 Grama Panchayats in the country. The fact that all the semi urban branches may not be in Grama Panchayats and the possibility of more than one branches operating in the same village point to the grim picture of around 2 lakh Grama Panchayaths in the country still bereft of banking facilities. The stated goal of the government is to deliver all its benefits, certainly very meagre in measures compared to actual requirements, to the beneficiaries through their bank accounts. There can't be any doubt that for realising this goal more new branches should come up, especially in rural areas. However, instead of taking the branch expansion process forward, the RBI has kept its faith in a new category of non-permanent workers called Business Correspondents (BCs), introduced with effect from 25 January 2006, for providing better banking services to rural people. The total number of BCs engaged by various banks comes to 22,18,000 at present. From the experience of all these years, it is clear that the BC arrangement is totally inadequate in extending banking facilities to more villages.

A mere examination of the business growth of banks during the last financial year will enable us to clearly understand the detrimental effects of the privatisation policy of the central government. When the public sector banks achieved 9.4% deposit growth and 13% credit growth, the private sector banks recorded much higher rates of 20.1% and 27.9% respectively. The rates were 31.3% and 25.8% for small finance banks, and 18% and 12% for foreign banks functioning in our country. A huge gap exists in the number of workers too. The public sector banks have 7,72,571 permanent employees. The total number of workers in the private sector and foreign banks together is 7,69,890. In addition to this 3 lakh daily wage/contract workers and 22,18,000 BCs work in the Indian banking sector. Of the total workforce in the banking sector, only 8.5 lakh are organised. It is owing to the combined resistance of these organised workers that the continued existence of the public sector banking system is being ensured in our country.

After the nationalisation, the banking sector in the country experienced tremendous progress till 1991. During this period, the public sector banks managed 90% of banking business. Now it has come down to 57.5%. This period also witnessed the private sector banks following policies akin to the PSBs. The private banks advanced priority sector credit including agricultural loans as per RBI norms. However, when the imperialist neo-liberal policies were officially introduced in India from 1991, the banking sector was also subjected to a paradigm shift. Policies to alter the mass banking character of the PSBs were rolled out at great speed in this period. PSBs are forced to levy cutthroat interest rates and service charges like new generation banks. The ruling class is trying to reduce the number and size of PSBs to prepare them for sale. On the occasion when the country is observing the 55th anniversary of bank nationalisation, strong public resistance shall arise under the leadership of the entire workforce in the banking sector to combat the anti-people banking policies.

(S. S. Anil, the author of this column is the all India president of Bank Employees Federation of India(BEFI). The views expressed are the author’s own.)