Dismantling Nationalised Banks

Amitava Choudhury

Before nationalisation, the banks in India used to be associated with and controlled by big business houses. For example, the United Commercial Bank belonged to the Birlas, Oriental Bank of Commerce to the Thapar group and Central Bank of India to the Tatas. The banks were nationalised to bring them under social control and run them in the interest of the common people. There was an urge to build a people's banking system and extend banking services to the rural sector so that those who depended on agriculture could avail them. Agriculture is the backbone of Indian economy and it could benefit a lot by coming into the ambit of banking services. Its success will be clear if one looks at some small statistics. In 1969, the banks had 8,000 branches in all. It rose to 32,000 in 1980 and to 60,000 in 1990. The proportion of savings deposit was 12 percent in 1969, which became 20 percent in 1980. Its benefit was reflected in the economic growth rate, which created a record of six percent in 1980.

Although nationalisation was announced in 1969, because of a lawsuit by bank owners in the Supreme Court claiming compensation, the takeover was completed only in 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 and Nationalised Banks (Management and Miscellaneous Provisions) Schemes, 1970/1980 received the sanction of the Lok Sabha and Rajya Sabha. Fourteen banks were nationalised in 1970 and six more in 1980, of which two were merged together. So, the number of nationalised banks stood at 19. The '1970/1980' suffixed to the Acts denote the years of the two phases of nationalisation.

Although the number of nationalised banks is 19, there are actually 22 public sector banks (PSB) including the State Bank of India, IDBI and Bharatiya Mahila Bank.

After nationalisation, the responsibility for all their activities lies with their wholetime directors. The Act limits their number to four for each bank. Among them, one will be the managing director and CEO and the others will be executive directors. Normally, the government does not interfere in the day-to-day functioning of the banks. The main responsibility of the government is to appoint the wholetime directors. Subsection 3(A) of section 9 of the Act clearly states that the central government shall appoint the wholetime directors in consultation with the Reserve Bank of India. This rule was followed for long.

Suddenly, the Union finance minister announced in early 2016 that some changes would be brought soon in bank management. He, however, did not spell out the changes planned. After some time, financial services secretary Hasmukh Adhia said that political interference in bank management must be curbed and for that, from now on the Bank Board Bureau (BBB) would recommend the candidates for appointment as Managing Directors and Executive Directors of Public Sector Banks instead of the existing Appointment Board. Subsection 1 of section 9 of the Act says, "The Central Government may, after consultation with Reserve Bank make a scheme for carrying out the provisions of this Act", hence the Scheme comes under the Act. Again, subsection 6 of section 9 says, "Every scheme made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions...." So, the proposal for any new scheme must immediately be placed in the Lok Sabha and Rajya Sabha while they are in session for 30 days and if necessary, in more than one session. Even if one considers the BBB as a scheme, first of all the government has not informed the public that it has been formed in consultation with the Reserve Bank. Secondly, which is more important, it has not been placed in the Lok Sabha or Rajya Sabha. There has been no discussion and the BBB has been set up keeping both the Houses and the people's representatives completely in the dark, which is absolutely illegal.

Now, two questions arise. The first is legal and the second, political. The public sector banks are managed according to the Act mentioned above. For one thing the Act is clear about everything from how many wholetime directors will be there to who will be responsible for their appointment. It says clearly that the central government will make these appointments in consultation with the Reserve Bank. The appointing authority is the Appointments Committee of the Cabinet (ACC), which now has two members, the Prime Minister and the home minister. The entire process used to be managed by a committee of the finance ministry called the Appointment Board. It used to issue notice of vacancy and constitute the interview board and the final notice of appointment used to be issued after consultation with the Reserve Bank and getting the sanction of the ACC in accordance with the law. Now, by delegating all these responsibilities to the BBB, the role of the central government and Reserve Bank as laid down by the law is being completely negated. Because BBB is not central government and there is no longer any mention of the Reserve Bank's role.

This situation cannot be supported politically either. Because the main objective of nationalisation was to hand over bank services and bank management to the people. The government is elected by the people and laws are made by the elected people's representatives. Taking such a big decision on the whims of some individuals without informing the people or people's representatives and discussing in parliament can never be supported. And since there is scope for the people to change the government after every five years, no government should take a decision affecting such a landmark step as bank nationalisation without consulting the people and taking them into confidence. It is politically unethical, because a nationalised banking system is not only the economic backbone of the country, but also the custodian of the hard-earned money and savings of the entire population.

Political parties and civil society organisations must unite to protest against this action and build such a resistance that the government is forced to retreat and scrap BBB.

The government has also announced that constituting the BBB is the first step towards giving the PSBs a structure of holding companies. Simply put, a holding company is a cluster of companies controlled by one of the companies in the cluster which owns at least 51 percent share of all the other companies. So, the control of all the companies is concentrated in the hands of one. It is nothing but a kind of merger. In the country there are 19 nationalised banks and the total number of PSBs is 22, including the State Bank of India, IDBI and Bharatiya Mahila Bank. By bringing these banks into the structure of a holding company, the government actually wants to reduce this number, 22, as much as possible. Henceforth, there will be 22 banks only in name, but the actual number will be three, four or five. So, it will become easier for the government or certain individuals to control them. The entire banking industry as well as the entire finances and economic system of the country will be concentrated in the hands of the government or those individuals.

This will negate the basic objective of nationalisation, which is to free the banks and the money deposited with them from the clutches of big business groups and channelise them to benefit agriculture and small and medium enterprises. It will facilitate the formation of big capital through the amalgamation of the deposits with several banks in the interest of multinational corporations and domestic corporate houses.

Taking such a step while the country is waiting to celebrate the golden jubilee of bank nationalisation in 2019 would amount to committing breach of trust with the people.

And it can be done bypassing the people and the people's representatives, without any discussion in parliament. One must remember that the 19 banks were nationalised with the sanction of the Lok Sabha and Rajya Sabha. History was created by changing the course of using the banking system as a mere commercial establishment and making it people-oriented to serve people's interests. The BBB is going to dismantle all this.

Frontier
Vol. 50, No.36, Mar 11 - 17, 2018