Bank unions fear takeover by defaulters after dilution

For example, United Western Bank is now facing a takeover attempt by a group of shareholders including a company which has defaulted on its loans. Emtex, whose account has become a non-performing asset in the UWB books, wants two of its nominees on the board of the bank. Similarly, business groups which have defaulted on bank loans have cornered the shares of private banks in the past also, but the Reserve Bank prevented any total takeover.

“We’re not against takeovers in India. But looking at the track-record of some of the business groups, it’s possible that some of them would make takeover attempts. It should not be allowed,” said another union leader. A Confederation of Indian Industry had last year mooted closure of weak banks and restructuring among others to strengthen the banking system. However, this had angered bank unions which made the NPA list public for the first time.

The RBI had stopped issuing bank licences to business groups fearing misuse of public funds. It’s not without reasons. An RBI investigation had revealed that the Bangurs who were running Bank of Rajasthan mismanaged the bank and diverted public funds.

“The share prices of PSU banks which were down for a long time rose between 7 to 20 per cent following yesterday’s cabinet decision and this is a warning,” the General Secretary of the All India Bank Employees Association (AIBEA), Tarkeswar Chakraborti told PTI. Besides, the government and the RBI have not officially revealed the names of loan defaulters to the public. “Why is it so secretive?” union leaders ask.

A senior member of the United Forum of Bank Unions (UFBU), Chakraborti said if the government went ahead with its plans to introduce an amendment bill to the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 and 1980 there would be another one-day strike. On the contention of government that safeguards such as putting a ceiling on acquiring only upto one per cent of total bank’s share by anyone would prevent takeovers, Chakraborti said it was not so. "Members of one family could always collude and buy up one per cent of shares each," he said.

The Government has said even if its equity in public sector banks came down to 33 per cent, the controlling authority will still remain with it. Chakraborti questioned the government’s contention that the public sector character of the banks would not be changed saying "though the government would be appointing the chief executive of the bank, even then 10 out of 15 directors of the banks could be from the private sector and would have the say."

The gross non-performing assets (NPAs) of banking industry soared to Rs 60,841 crore as on March 31, 2000 as compared to Rs 58,722 crore in the previous fiscal, a whopping jump of Rs 2,119 crore. The Reserve Bank of India’s `Report on Trend and Progress of Banking in India for 1999-2000′ says gross NPAs of public sector banks alone have increased from Rs 51,710 crore in 1998-99 to Rs 53,294 crore in 1999-2000, while net NPAs increased to Rs 26,188 crore from Rs 24,211 crore in 1998-99.

The real NPA figure should be much higher than Rs 60,841 crore since this figure captures only the NPAs of the scheduled commercial banks and does not include the sticky loans of three financial institutions. Big bull Harshad Mehta’s sticky account to State Bank of India amounting Rs 812 crore since November 1992 continues to remain as the most heavyweight NPA in the industry. Most of the business groups like the UB, the Parasrampurias, the DCM group, the Modis and the Singhanias figure in the NPA list.