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

  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

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.

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.

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.

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:

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

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