Privatising PSBs To Patronise Robber Barons? -Part2
In the first part, we saw how banks across the globe fared. But the main question is: how did leading private banks in India fare? Three lenders stand out: Global Trust Bank, ICICI Bank and Yes Bank.  
 
Global Trust Bank, the Ramesh Gelli and Jayanth Madhab sponsored new generation bank, was touted as a new star when it was inaugurated in 1994 by Dr Manmohan Singh, then as finance minister. In less than 10 years, it collapsed; the State-owned Oriental Bank of Commerce was mandated to acquire GTB in 2004 to safeguard the depositors. It took three years for OBC, then known for its efficiency to absorb the shocks of a bail-out. And nothing really happened to the promoters.
 
ICICI Bank was a commercial bank floated in 1994 by Industrial Credit & Investment Corp of India Ltd, a development finance institution (DFI) in the joint sector established in 1955. As it expanded its business, there was a reverse merger of the parent with the offspring: the new entity continued to carry the name ICICI Bank but became a ‘universal bank’ undertaking, among others, the functions of a DFI as well. In the recent past, ICICI has come in for critical public scrutiny. Two activities need to be referred here.
 
One is the scheme of cross-selling of insurance and mutual fund products by ICICI to its customers. (Read: Insurance Cross Selling: Bank Officers Want Restriction on Targets, Pressure for Sales—large PSBs like SBI were also involved).  Many senior citizens were conned into buying unwanted insurance policies. The staff had targets to meet, as in the case of Wells Fargo Bank.
 
The second: the Bank’s managing director (MD)and chief executive officer (CEO), Chanda Kochhar allegedly flouted corporate governance rules while sanctioning loans to certain corporates, despite a likely conflict of interest. She had to leave her job and is now under investigation by the Central Bureau of Investigation (CBI).
 
Yes Bank was floated in 2004 by Rana Kapoor and Ashok Kapur. After the tragic death of Ashok Kapur, the first CEO in 2008, Rana Kapoor took over the reins. Mr Kapoor wanted the Bank to be driven by ‘an animal spirit’ and, in 10 years, it became one among the top-5 private banks of the country. How did it achieve this?
 
When the economic downturn began after 2016 and all banks were hit hard, Yes Bank’s advances grew exponentially. Between 2014 and 2019, they shot up five times from Rs55,600 crore to Rs2,41,500 crore, when the industry growth was between 10% and 12%. 
 
In March 2020, the Reserve Bank of India (RBI) brought Yes Bank under a moratorium due to its excessive bad loans. The State Bank of India (SBI) stepped into bail the Bank out by contributing Rs10,000 crore to its capital. Rana Kapoor was arrested by CBI on charges of money laundering and corruption while granting credit facilities.
 
Didn’t the regulators know the problems in advance? Reports are in the public domain that RBI did notice serious lapses in governance of the Bank and the domineering role of the CEO. The Bank had been granting loans to corporates who were already in the defaulters’ list of other banks. But the red flags were ignored.
 
Access to Financial Resources Gives Uncontrolled Power
In US, UK, Germany and Australia, despite robust regulations, enforcement, standards of governance and strong law, huge banks robbed the gullible customers and put the financial system under serious stress.  The banks’ internal controls were lax, the domineering CEOs could not be reined in by the boards and the regulators looked the other way when they had vital clues of the wrongdoings. 
 
They violated the laws on money laundering and regulatory requirements. The desire to accumulate wealth at the cost of ordinary customers and the society drove away all canons of banking. The bailout money from the governments was used as a golden parachute by the CEOs. Those who lost their livelihood and mortgaged houses had no relief. These are pointers to the risks an economy like India will be exposed to.
 
Access to huge financial resources bestows enormous power—power to influence policy making, to enrich yourself quickly and to silence dissent (the whistle-blowers). When the reins are with the democratically elected government it is accountable, at least in theory. When PSBs, like any other PSU (public sector undertaking), are sold, invariably the billionaires acquire them and get the power. India’s privatised banks may not be different from their counterparts elsewhere in the world. Our policy-makers can ill-afford to ignore that lesson. 
 
(This is concluding part of a two-part series)
 
 
(TR Bhat is former president of All India Bank Officers' Confederation (AIBOC) and former officer of Corporation Bank)
 
Comments
karan.kabirnagar
1 year ago
Government of India is saying that only four state owned PSU Banks would be in future. I would like to say that other PSU banks also should be merged in these four PSU banks. Remaining State owned PSU banks should be merged with PNB bank or with Bank of Baroda. No PSU banks should be privatised.
m.prabhu.shankar
1 year ago
PSU Banks should not be privatised for the simple reason that anything that is not working with Govt management will work better if privatised is an outright lie.
karan.kabirnagar
1 year ago
I opposed the process of privatised the PSU banks by the government of India. Because private banks owners/CEO/ Managing Directors looted the banks. Example are there, (1).Global trust bank which was founded in 1994,this bank failed shortly and merged in OBC PSU banks after all, (2) ICICI private bank also failed this bank is also looted by chanda kochhar CEO of this bank. (3) Yes bank which is private bank It's owners Rana Kapoor looted the money of this bank. After all State Bank OF India step to bail this bank. So in last PSU banks taken over all these banks. So why government of India is privatising the State owned PSU banks. So I request the honorable prime minister of India and Finance Minister Sita ramanan to stop the privatised of PSU banks. All employees working in PSU banks are selected through very tough competitions. This types of policies will effect on next general elections. So stop privatisation of PSU banks.
karan.kabirnagar
1 year ago
I and my family, relatives. Known frends are totally oppose the privatisation of State run PSU Banks. Because all the government schemes for poor people of this country are run by the PSU banks. If government privatised the PSU banks then private owners will loot the banks slowly slowly and fled away. Examples are, Yes bank(Rana kapoor), ICI banks(chanda kochhar). So please stop privatisation of PSU banks.
ssk.pab
1 year ago
It is not really the question of privatizing a bank or not. Private or public - a Bank is Trustee of public finance. This trustee has to be answerable to the REGULATOR. In theory yes, it is. But in practice it is the failure of the REGULATOR that lets the willfully defaulting Bank get off the hook.
It is my personal experience that the regulating arm of the Regulator, winks at the default of he Bank that leads to the Bank taking the Public for a RIDE. Therefore the real question is - where is the self correcting mechanism of the REGULATOR that will enure that to start with, there is no wilful default of the regulating arm of the regulator itself?
RBI IS WOEFULLY LACKING IT THIS AREA.
jiten7879
1 year ago
we fully opposo privatisation of psu bank
it not a sensible decision. it is psu bank by which india stands still at time of world recession.
indian economy is growing because of psu bank only.will private bank consider poor and needy people.their aim will be profit making only.what happened of them.has Govt think over it..Govt only copy foreign policy.but it wil not suitable.in india
Govt must think. and change their decision .of privatisation.otherwise govt may repent in next election.
kalemohan
1 year ago
but what about co-operative banks?these are run by the politicians for personal gains and party favours. but poor common man is robbed.
ssndeepmore89
1 year ago
Mergers of PSBs are a welcome step. Nevertheless, the long term solution lies in privatsation only. If not for the annual Government props, the Public sector banks would have collapsed & vanished decades ago. Today, the PSBs are no better than the co-operative banks that fail regularly. It's high time that the PSBs stop feeding on the taxpayer's money every year like a leech. Had the same money been distributed amongst the Pvt sector banks, they would have made to the top banks in the world.
rashokan
Replied to ssndeepmore89 comment 1 year ago
Can you explain how the govt is propping up the PSBs? Do you know the process? It is PSBs who are funding govt at market rate (gsec rate) to govt which comes in the form of bonds and treated as capital.
cvkakatkar
1 year ago
Good synopsis of the intentions of the barons.
Look forward, to analysis of the Barons who control and intend to control smaller Banks, like CSB, RBL and LVB - who are regularly in share Market news.
Finally its the employees and depositors whose life is at stake.
karan.kabirnagar
1 year ago
Merger of state owened PSU banks is right steps of government of India. And there should be only two PSB banks which to be govern by the Government of India. Stop the privatisation of State owened PSU banks. Because this type of policies failed in America, Australia, and England in the time of economic crisis, because private owners of the Banks looted the banks and flew away from country. So stop privatisation of state owened PSU banks.
Free Helpline
Legal Credit
Feedback