The Hindu Business Line : Finding the right answers to banking issues

BANK trade unions have never thought beyond fighting for higher wages for its followers. But now the All-India Bank Officers' Confederation (AIBOC) has decided to set up an Independent Commission on Banking & Financial Policies with Mr S.P. Shukla, former Finance Secretary as the Chairman.

The amiable Mr T.R. Bhat, Joint General Secretary, AIBOC, told Business Line that the commission will have experts from various fields (most of them are popular Leftists) addressing a few questions listed below:

a) Was the nationalisation of banks in 1969-80 and the subsequent developments in the banking sector till 1991 in furtherance of the declared economic priorities of the country?

b) What were the failures, if any, of the banking system which impinged on the larger economic issues?

c) What will be the impact of the changes taking place in the banking industry now in relation to ownership, liberal branch licensing, free entry to Indian and foreign players, profits and the likely mergers on basic developmental issues?

d) Will mergers and amalgamations of banks serve the larger public interest?

e) Without sacrificing commercial interests what could be an alternative model of banking that can meet the fundamental developmental issues?

The intervention by AIBOC is pertinent (other bank trade unions could help by teaming with AIBOC) as the Finance Ministry, for reasons unknown, is getting too liberal with foreign banks. Given a chance the Finance Ministry would like to hand over the country's private banks to Citi or HSBC even if that means brushing aside RBI.

The latest move to give preference to foreign banks based in Singapore for acquiring a creeping stake in Indian private banks seems a one-way give away with no guarantee that Indian banks can hold even a minority stake in Singapore-based banks.

Why should foreign banks be given preference in the Indian banking sector when they have done nothing but make trading profits? Why is the Finance Ministry so keen on them? Can SBI pick up say 10 per cent stake in Citi in USA?

The Independent Commission will find it hard to go against mergers of government banks though Mr Bhat does not find any particular virtue in the idea.

Reports are the Finance Ministry has passed on the proposal of merging Union Bank of India with Bank of India to the RBI for comments. Based on RBI suggestions, the Finance Ministry will okay the scheme which has to be placed in the Lok Sabha for final consent. Parliament can modify or alter the scheme under various legal provisions. The Bank of India— Union Bank of India merger will pose human and other problems as both are strong in the West.

A second VRS will have to be okayed by the Finance Ministry as at least 30-40 per cent of the staff will turn redundant. Today, the head offices of Union Bank of India are at Nariman Point while that of Bank of India is in the Bandra-Kurla Complex. What happens after the merger? For the equity markets, the swap ratio will be critical as both banks are listed. An issue, which the Independent Commission could look into, is the scant concern of the banking industry for agri and rural lending which mergers will not cure. Bank chairmen are making odd visits to a few villages under political pressure; they are not keen on building an agri portfolio.

In the last 10 years, Government banks in search of profits have competed for the attention of triple rated corporates apart from playing the markets. Can Indian banking don this role when capital investments in agriculture are sharply dropping and some 300 million poor have no collateral to be eligible for bank loans. The banking practice of insisting on collateral will have to go for the poor to be part of the system. Is the Western model particularly relevant for a developing economy? And if rural India continues to exist in small print it is because bankers and workmen dislike rural postings. Bank trade unions have not helped. With Mr Bhat around one can expect an alternative and indigenous version (hopefully not a Chinese or Russian version) for the banking industry by March 2005.

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