Banks For All Citizens – When and How

Dr. N. Bhattacharya

Recently ‘finance capital’ created the ‘worst economic depression’ not only in the USA but its disastrous effects are felt throughout the globe. Around 8.5% unemployment, a huge fiscal deficit and the increasing ‘adverse current account balance’ of USA created economic and political imbalances throughout the globe. In Europe situation is more miserable and the European Union (EU) is facing a crisis of disintegration. In the USA members of unemployed families were spending winter nights in the streets because they failed to pay back housing loans to their banks. Students had to discontinue study for their failure to pay back instalments on ‘education loans’ to banks. Press reports say parents were sending their children to orphanages because due to ‘austerity’ measures in Greece many parents lost their capacity to feed and educate their children.

Government and Finance Capital in India

One feel depressed to see a recent  press photograph  showing one young man (aged around 20 years) with both h is hands chopped off for his failure to repay a loan of Rs 300 on (The Hindu 3.3.12). Reports were published in  national dailies how one SKS Micro Finance Company, the only listed micro finance company in India was instrumental in ‘human slaughter’ in villages of India by applying barbaric illegal collection methods of outstanding loans  (The Hindu 26.2.2012). These are some examples of what is the real face of ‘inclusive growth in India’ in 21st century. Money-lending to destroy poor households remained a ‘critical economic policy’ in this country before independence and in 21st century this act is allowed by governments to satisfy the greed of corporates to earn more and more wealth. Both organised and unorganised money lenders are still allowed to loot the poorest debtors.

‘Manipulated government statistics’ in India show that the average saving rate is around 32/33 percent of the GDP but in the so-called advanced developed countries household savings are either nominal or are simple dissaving. In almost all the developed countries sovereign debts are unreasonably high in relation to their respective GDPs. In Greece it was 147.8 % of the GDP in 2010, Italy 109 %, U.K. 85.5% and USA 61.3 % (OECD statistics). Rating agencies are not happy with performance of almost all erstwhile developed countries. However, it is humiliating for ‘incredible India’ that poor debtors owning some thousand of rupees and failing to repay debt are forced to commit suicide, and technically this is nothing but ‘human slaughter by the powerful moneylender’s lobby and punishable under various sections of India Penal Code. As usual no one was chargesheeted, even the National Human Right Commission refused to act on this ‘national shame’. The ex-Chairman of SKS Micro Finance, Mr. Vikram Akula submitted his resignation and he shamelessly claimed huge amount of perquisites in the form of stock options or ESOP.  Why did the government which is supposed to supervise the functioning of corporate behaviour in India fail to act against this particular criminal corporate? The government of India’s has a regulator for the corporate sector called the Company Law Board and we do not know what their functions are and why they are paid taxpayer’s money? This incident of ‘human killing’ happened in Andhra Pradesh by a greedy corporate. Sometime back another local corporate, Satyam Computer and its management created history by ‘window dressing accounts’ in connivance with one international auditing firm. How long are Indians  going to be looted by unscrupulous corporate houses?

Bad Loans of Banks in India (in Rs crores)

March 2007 March 2008 March 2009 March 2010 March 2011
50486 56435 68973 84747 96795

(Economic Times, 13.03. 2012)

It shows that though bad debts are common in financial business, in a poor country like India, bad loans of banks have virtually doubled in 5 years and it is hovering around Rs 1,00,000 crores. One has to consider that these bad loans remain outstanding despite various attempts to recover outstanding amount and/or sale to Assets Reconstruction companies. There are also huge amounts of doubtful loans of the banking sector waiting to be declared bad loans. One must be informed by the RBI about the changing profile of combined bad and doubtful loans of the banking sector in India and not ‘bad loans’ only. As compared to bad and doubtful loans of banks in India the loss due to the non-payment of loans by self help groups and other decentralised poor debtors of micro finance companies is very insignificant. Moreover, due to some unscientific anti-social convention of the banking system, despite public demand to disclose names of bad debtors, banks are not permitted to disclose the identity of those bad debtors. Once that is disclosed, this country will know how banks are looted by unscrupulous businessmen. Can parliament use its law making power to change the law and disclose the names of defaulters, maybe from a retrospective date as suggested in the 2012 Budget related to transaction like the Vodafone matter?

Mohammad Yunus of the Grameen Bank in Bangladesh, started up in the USA after the meltdown in 2007. This bank is in huge demand for it gives loans for small amounts such as $1500 to a poor borrower, as big banks in USA do business for the world, but they do not have funds for their poor neighbours especially after 2007. We in India have 630,000 villages and two-thirds of our people live in these villages. But 95% of these villages do not have a branch of any bank. 40 p.c. of our people have bank accounts and technically these are mere ‘deposit and withdrawal’ accounts and a very small number of these account holders use all the services offered by modern banks. (Economic Times 28.02.12). It is claimed that for 1240 million people we have more than 800 million mobile sets and Indian and Foreign corporates are earning a huge profit from this mobile business. The Vodafone case is an eye opener showing huge capital gains by these foreign corporates from Indian business.  The Reserve Bank of India has miserably failed to provide banking and other services to the people of this country. The main factor for this wilful neglect by the RBI is to confuse the concept of ‘service’ with the word ‘profit’ which often wrongly used in a service like banking. Recently the head of the Metro Rail Corporation of Delhi, a technocrat cum bureaucrat during his retirement and farewell speech asked the government to consider the ‘transport sector’ in a democracy as a service sector and not as a ‘profit generating venture’. In the same manner every citizen has a right to get the services of banks and insurance as it is provided in all metros of the country. In a poor country like India people have right to ‘vote and elect’ members in Assembly and/or in Parliament, but our bureaucracy refuses to provide banking and insurance services to all citizens of this country. Though they happen to be the real masters in a democracy, under the pretext that it is ‘uneconomical’ banks are not where people live. This is nothing but continuation of a colonial mindset, incidentally the RBI is a product of a British law of 1934!

To take advantage of the situation created in the rural areas, we find lot of vultures merrily sucking the blood of our hapless rural households. The rich families in the unbanked villages of India are owners of unlimited land irrespective of the ‘land ceiling law’, and they rent out their land and treat the sharecroppers as bonded labour. All the inputs are supplied on credit by these families of rich households and the final output is purchased by these village money lenders at the lowest possible price. This was the practice in British days and now it has deteriorated so much that foreign genetically modified seed companies are destroying Indian Agriculture by selling costly inputs but at the same time causing the destruction of soil fertility. Indian Agricultural Universities are aiding and abetting the anti national activities of these foreign seed, fertiliser and pesticide companies because our politicians are directly involved in promoting the interests of these foreign corporates. Our learned Prime Minister recently blamed the USA for sending funds to NGOs in India to organise the agitation in Tamil Nadu against a nuclear plant sold by Russia, but he refuses to ask USA to ban their corporations looting poor Indian cultivators through the sale of unscientific genetically modified seeds or GM seed. There should be official ‘regulatory authorities’ to control the trade practices of all those agencies involved in Indian Agriculture. This is an elementary requirement in a market economy, we do not know how our learned Prime Minister is ignoring its importance even after 20 long years of  his introduction of the  World Bank’s pet project for the third world—‘liberalisation, privatisation and globalisation or in short, LPG’.

Priority Sector Loans

According to RBI guidelines the priority sector should get 40 percent of total advances from Indian Banks and 32 percent from foreign banks. But the definition of the priority sector is kept messy and banks are showing all advances as ‘priority sector loans’ starting from ‘gold loans’ to purchase of the BM cars used by rich landowners. In the recent ‘slaughter of farmers’ by the UP police in Greater Noida near Delhi on the farmers’ refusal to hand over land requisitioned by the government for building factories but was to be used actually for the construction of flats, it was found that some big landowners wanted to build helipads and they have applied to the proper authorities for permission to construct and naturally such projects will be financed out of the ‘priority sector lending fund of the banks’. Delhi is the capital but here agricultural loans per capita are the highest in the country, but one has to search with difficulty for agricultural land in Delhi where crops are really produced! In 2010 banks in  Delhi advanced Rs 30813 crores for agriculture and allied activities  to produce gross domestic product for the state under this head of Rs 1598 crores (Government of Delhi Publication). Beautiful correlation? In various states the number of small and marginal farmers varies between 70% to 94% of the total number of farmers. Their application for loans are hardly entertained by any formal bank both Indian and foreign. Poor people both in villages and in urban centres are at the mercy of unorganised moneylenders. Committing suicide by lakhs of poor farmers for non payment of loans from moneylenders is a non-event in India in 2012!

Payments through banks

India today is in the process of rapid transformation. Rampant corruption is under public scrutiny. All payments by government to individuals of Rs 1000 and above is to be made through the banks. Banks are appointing individuals or institutions called ‘bank correspondents’ to facilitate banking through electronic appliances. Smart Cards are issued under ‘adhar programme’ so that borrowers’ identification is assured, but things will take their own time. The deprived section of our population living in remote areas of the country and in a democracy they are the majority of the population, have seen how our politicians visit these voters in inaccessible areas on helicopter and four wheelers and communicate through mobile SMS in lakhs. In the 60 districts of the country the government claims as ‘terrorist infected areas’ the Indo Tibetan Border Road Organisation ( ITBRO) have  constructed beautiful all weather roads for the movement of security forces. To carry on the  ‘war against terror’, money is flowing like water, but to spread bank networking in all the villages of the country, for the last 66 years no government could show any sense of responsibility. This is the minimum service a modern society should provide, specially when our leaders are participating in G-20 meetings regularly and suggesting how erstwhile developed countries can overcome ‘economic depression’ by increasing  their exports to India and helping India with ‘permanent membership’ in Security Council.

Micro Finance Bill

In a country where more than 99.9% of its population lives in abject poverty, the Micro Finance is hardly of any relevance to policy makers. However, the old business of unscrupulous money lending is given a new boost to help growth of demand in the rural sector for manufactured consumer goods specially of FMCG Corporates like Unilever, Proctor and Gamble, ITC and others. It was also required to push sale of agricultural inputs like G.M. seeds and their combo packets of fertiliser, pesticide and so on of the multinational corporations. With the introduction of the rural employment scheme of 100 days per family at Rs 100 per day and a minimum support price of crops, in rural areas money started flowing mainly among landowning families. This  new culture of ‘with profit’ micro finance institutions and their greed to earn more profits, people were allured to commit themselves to more loans at sky high interest rates and the inevitable happened in the form of bankruptcy of the borrowers and their death by suicide. The worst scenario was found in Andhra Pradesh and here the government banned this microfinance business under the Moneylending law. However, due to public pressure and pressure from genuine service oriented mutual self-help groups, the government of India agreed to enact a law to organise this business of Micro finance in India. The Bill is supposed to be taken up in 2012 Budget session. The RBI has agreed to supervise functioning of these institutions. Let us hope that henceforth the Central Bank of India will be allowed to function according to the word and spirit of the RBI Act of this country.


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