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Home > 2020 > Banking License to Corporates — a very bad idea | C.H. Venkatachalam

Mainstream, VOL LVIII No 51, New Delhi, December 5, 2020

Banking License to Corporates — a very bad idea | C.H. Venkatachalam

Saturday 5 December 2020

  ALL INDIA BANK EMPLOYEES’ ASSOCIATION
Central Office: “PRABHAT NIVAS”  Regn. No.2037
Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
Phone: 2535 1522  Fax: 2535 8853  web: www.aibea.in
 e mail: chv.aibea[at]gmail.com & aibeahq[at]gmail.com

C.H. Venkatachalam, General Secretary

With RBI’s Internal Working Group submitting their recommendation that Corporate Houses and Big Business Houses can be allowed as promoters of Banks, a lot of debate is going on. To us in AIBEA, it is not very difficult — rater it is very easy - to come to the conclusion that allowing entry of Corporates to run their own Banks is a very bad idea because, we have our bitter experiences.

Mismanagement of private Banks in our country is not a news to anyone of us. Every now and then we observe that some private Bank or the other is getting into problems. Few months ago, we saw the crisis in YES Bank and how it was bailed out by the RBI and Government by managing capital from SBI. Now LVB has been donated to DBS. When you look back at the time capsule, the list is long.

Era of Bank Failures - 1639 Banks collapsed in five decades :

Those were the years in 19302, 1940s and 1950s when all Banks in our country were private banks, some of them also foreign banks. Many private banks were failing and getting closed. Innocent people who had kept their savings as Deposits in the Banks lost their money.

Failure of 1639 Private Banks in India — 1913 to 1960

Year No. of Banks failed
1913 12
1914 42
1915 11
1916 13
1917 9
1918 7
1919 4
1920 3
1921 7
1922 15
1923 20
1924 18
1925 17
1926 14
1927 16
1928 13
1929 11
1930 12
1931 18
1932 24
1933 26
1934 30
1935 51
1936 88
1937 65
1938 73
1939 117
1940 107
1941 94
1942 50
1943 59
1944 28
1945 27
1946 27
1947 38
1948 45
1949 55
1950 45
1951 60
1952 31
1953 31
1954 27
1955 29
1956 28
1957 30
1958 28
1959 38
1960 26
TOTAL NO. OF BANKS FAILED 1639

Pioneering role of AIBEA and Com. Prabhat Kar: AIBEA took up the issue and built up a national campaign. AIBEA also launched agitation demanding safety for people’s money. In 1957 Com. Prabhat Kar, our beloved leader and the then General Secretary of AIBEA contested elections and became a Member of Parliament. He championed this issue in the Lok Sabha by repeatedly raising this issue and forced debates in the Parliament. Thus, outside AIBEA was fighting in the streets and inside the Parliament Com Prabhat Kar echoed these issues.

Amendment to Section 45 of B.R Act: Due to all these struggles and efforts, Government agreed and an amendment was made to Section 45 of the Banking Regulations Act. This Amendment to the B.R. Act enabled the RBI to intervene in the affairs of any Bank in public interest and merge that sick Bank with another Bank. This amendment stopped abrupt closure of any Bank.

Thus AIBEA played the important role in fighting for the interest of Depositors and in preventing Banks being closed down. Since then, no Bank in our country has been closed down. All the ailing Banks were put on moratorium and merged with another Bank.

From 1961 to 1968, 263 private Banks failed but all these Banks were merged with some Bank or the other. No Bank was closed.

1961 47 1964 82 1967 15
1962 33 1965 42 1968 7
1963 20 1966 17 1961-68 263

1969 — Golden Era of Nationalisation begins: 

AIBEA was not satisfied with this. Our visionary leaders Com Prabhat Kar and Com H. L. Parvana wanted the Banks to be nationalised so that not only the people’s money is safeguarded, but also that money is helpful for national development instead of helping the private owners to earn more profit. From 1964 Conference of AIBEA held in Trivandrum, this call was given and a bitter struggle ensued. This struggle led to the Government accepting the demand and Madam Indira Gandhi nationalised the 14 major private Banks that were controlled by powerful Business Houses like Tata, Birla and others.

Public Sector Banks —Neelkant Mahadev — the swallower of private losses - the Savior of people’s money: After nationalisation of Banks, we have seen so many failed private banks have been merged with public sector Banks. Public Sector Banks have become the Neelkant Mahadev by swallowing the poison of loss of the private Banks and safeguarding the precious savings of the common people kept in the Banks as Deposits.

Failed Private Bank Merged with Govt. Bank Year
Bank of Bihar State Bank of India 1969
National Bank of Lahore State Bank of India 1970
Krishnarao Baldeo Bank State Bank of India 1974
Belgaum Bank Union Bank of India 1976
Lakshmi Commercial Bank Canara Bank 1985
Miraj State Bank Union Bank of India 1986
Hindustan Commercial Bank Punjab National Bank 1986
Traders Bank Bank of Baroda 1990
Bank of Tamilnad Indian Overseas Bank 1990
Bank of Thanjavur Indian Bank 1990
Parur Central Bank Bank of India 1991
Purbanchal Bank Central Bank of India 1991
Bank of Karad Ltd. Bank of India 1993
Kashinath Seth Bank State Bank of India 1995
Punjab Co-operative Bank Oriental Bank of Commerce 1997
Bari Doab Bank Ltd. Oriental Bank of Commerce 1997
Bareilly Bank Ltd.  Bank of Baroda 1999
Sikkim Bank Limited United Bank of India 1999
Benaras State Bank Ltd. Bank of Baroda 2002
Nedungadi Bank Ltd. Punjab National Bank 2003
SouthGujarat Local Area Bank Bank of Baroda 2004
Global Trust Bank Ltd. Oriental Bank of Commerce 2004
United Western Bank IDBI Bank 2007
Bharat Overseas Bank Indian Overseas Bank 2007
YES Bank — bailed out by State Bank of India 2020

Bulging Bad Loans — Who are the main culprits : Everyone knows that the only major ill confronting our Banks today is the alarming and huge bad loans. Everyone also knows that the main people behind these bad loans are the Corporate delinquents and wilful defaulters.

Year Bad Loans Written Off Year Bad Loans Written Off
2001 5,555 2011 17,794
2002 6,428 2012 15,551
2003 9,448 2013 27,013
2004 11,308 2014 32,595
2005 8,048 2015 49,976
2006 8,799 2016 59,400
2007 9,189 2017 81,684
2008 8,019 2018 1,28,230
2009 6,966 2019 1,96,849
2010 11,185 2001 TO 19 6,94,037 CRORES

IBC — who has gained and who has lost : In the name of Insolvency and Bankruptcy Code, Corporate defaulters are relieved of their huge loan obligations to the Banks and these bad loans are sold to other Corporates for cheap rates. Thus Banks are the losers and Corporates are the gainers in the process. See the following examples:

COMPANY/ BORROWER LOAN AMOUNT DUE RESOLVED for HAIRCUT/ DISCOUNT / CONCESSION GIVEN PURCHASED BY
ALOK INDUSTRY 30,200 CR 5,052 CR 83 % RELIANCE
MONNET ISPAT 11,478 CR 2,892 CR 75 % JSW
ELECTROSTEEL 13,958 CR 5,320 CR 62 % VEDANTA
JYOTHI STRUCTURE 8,179 CR 3,691 CR 55 % Rich individuals
BHUSHAN STEEL 57,505 CR 35,571 CR 38 % TATA
ESSAR  54,000 CR 42,000 CR 23 % ARCELOR MITTAL
TOP 50 CORPORATE DEFAULTERS - BANK LOAN WRITTEN OFF Rs. In Cr
GITANJALI  5492
COASTAL PROJECTS 984
REI AGRO 4314
PAREKH ALUMINEX 975
WINSOM DIAMONS 4076
FIRST LEASING CO 929
ROTOMAC 2850
CONCAST STEEL & POWER 888
KUDOS CHEMI 2326
STERLING OIL RESOURCES 888
RUCHI SOYA  2212
STERLING BIOTECH 887
ZOOM DEVELOPERS 2012
ACTION ISPAT & POWER P LTD 887
FOREVER PRECIOUS JWELLARY  1962
DIAMOND POWER INFRASTRUCTURE 870
KINGFISHER AIRLINES 1943
SURANA CORPORATION 855
DECCAN CHRONICLES 1915
INDU PROJECTS 835
ABG SHIPYARD 1875
ARSS INFRASTRUCTURE  794
TRANSSTROY 1790
SHREE GANESH JEWELLERY 774
SURYA VINAYAK INDUSTRIES 1783
ELECTROTHERM 768
S KUMAR 1581
ABC COTSPIN 766
GILI INDIA 1447
VARUN INDUSTRY 764
VMC SYSTEM 1331
ERA INFRA 738
SIDHI VINAYAK LOGISTICS 1318
SEL TEXTILES 718
GUPTA COAL INDIA 1235
SPANCO LTD 705
SURYA PHARMA 1208
B S LTD 701
NAKSHATRA BRANDS 1109
SAI INFOSYSTEM 683
INDIAN TECHNOMAC 1091
JAY POLYCHEM 677
JAIN INFRA PROJECT 1073
LOHA ISPAT 646
HUNUNG TOYS & TEXTILES 1039
JAS INFRASTRUCTURE & POWER 630
K S OILS 1026
CENTURY COMMUNICATION 607
NAKODA LTD 1025
KEMROCK INDUSTRY & EXPORT 605
TOTAL WRITE OFF IN 50 ACCOUNTS 68,607 Cr

Banks incur losses due to provision for bad loans given to these Corporates: 

(Public Sector Banks) Operating Profit Provision for bad loans Net loss Rs. Crores
2015-16 1,36,926 1,54,918 17992 
2016-17 1,58,982  1,70,370 11,388
2017-18 1,55,585 2,70,953 85,370
2018-19 1,49,804 2,16,410 66,606
2019-20 1,74,336 2,00,353 26,016

Can we hand over Banks to these Delinquents, Defaulters & Dodgers? Banks deal with people’s money. Banks deal with public savings. It is risky to hand over Banks to these Corporates. Our experience is very bad.

Past was bitter
Present is unpleasant
Future will be disastrous 
People’s money for people’s welfare Not for private Corporate loot.

C.H. Venkatachalam
GENERAL SECRETARY

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