Cheques amp; Balances

Interestingly, the Varma committee8217;s recommendations have not found favour with bank managements, independent analysts who dismiss them as weak medicine or even the Finance Minister himself. On Friday last, Yashwant Sinha told theCII that government did not have funds to spare for recapitalisation of banks. If that is true, then the FM will have to come up with some alternative medicine for sick banks, which could include sale of a majority stake to a strategic partner.

Curiously, it is the suggestion that PSU banks be privatised that has apparently angered trade unions the most. The mood of the AIBEA seems completely contrary to a financial daily8217;s report last month, that the union which controls 23 out of 27 public sector banks has turned more pragmatic. In a couple of negotiations it had accepted longer working hours and had permitted the transfer of employees from metro to semi-urban areas to facilitate restructuring. Apparently bank employees are willing to be pragmatic, so long as they alone are not asked to make bigger sacrifices.

Reacting to this column last Sunday, Venkatachalam wrote to me that you have very rightly said that there is no public anger against the government decision to dole out more money to the banksfor their revival even though this money comes from their taxes. But they are equally not angry that their hard earned savings kept in the banks as deposits have been given as huge bad loans to many business houses and the government is not taking any action against these defaulters to get their money back8217;. Very true. In fact, Indian Bank is commercially unaffected by the wiping out of its networth and deposits have in fact increased.

Venkatachalam talks about the velvet glove treatment to business houses, and willful defaulters and hits out at the corruption involved in siphoning off money from banks. Why do banks not publish a list of defaulters? Why is criminal action not initiated against wilful defaulters, asks Venkatachalam.

Very true. This writer has several specific examples of the RBI8217;s supervision department letting off glaring lapses and violations with a private reprimand which has no deterrent effect. Similarly, the RBI has yet to comply with the Central Vigilance Commission8217;s demand thatthe list of defaulters should be made public and banks continue to lend money to these businessmen. But all this still does not absolve bank employees, because they seem to protest only when they are called upon to make sacrifices. At other times they too are happy enough with the inefficient system, so long as their wage negotiations are successful. Had bank employees been seriously perturbed by bad loans they would have found ways to get the information out to the public, notwithstanding the restrictions placed by outdated banking secrecy rules.

Yet, three years after Indian Bank8217;s networth was wiped out, information about its politically motivated loans and shady practices scarce and sketchy. Venkatachalam says that bank employees would welcome steps to punish wilful defaulters. It would be far better if trade unions worked at exposing these defaulters by pressuring the RBI to publish the list of defaulters and stop the sanction of new loans to them?

Finally, Venkatachalam says that privatisation isnot the answer to the problem of sick banks. He cites the examples of Bank of Tanjavur, Bank of Sikkim, United Industrial Bank, and many more as examples of private banks which are broke due to bad loans. He is again correct 8212; privatisation is not a panacea, but the present situation cannot continue either. It is a fact that nationalised banks breed inefficiency because management is neither forced to be efficient nor profitable to attract business. Secondly, sick nationalised banks are revived and recapitalised by using public funds; this is unacceptable. Finally, trade unions should ensure privatisation does not pass control into the hands of weak or corrupt business houses, by demanding proper divestment procedures. Several private sector banks are performing extremely well, there is a good chance that some of the sick nationalised banks may find strong foreign buyers who can revive them and also offer growth opportunities to the staff. Bank unions may have several strong arguments to back theiragitation, but there is no denying that the financial sector needs a clean up, and this will be possible only if trade unions too are pragmatic and vigilant.

Author8217;s email: suchetadalalyahoo.com