Calling the partnership between State Bank of India (SBI) and Adani Capital Pvt Ltd as ‘worrisome’, the Peoples’ Commission on Public Sector and Public Services (PCPSPS) has asked the Reserve Bank of India (RBI) to reconsider its policy and reverse the deal between the country’s largest public-sector lender and Adani group.
In a statement signed by prominent citizens and activists, including bureaucrats, academics and bank union leaders, PSPSPS says, “We are aggrieved by the fact that the RBI issued such notification without holding wide-ranging consultations with all stakeholders, especially the farmers. To us, it appears to be part of the concerted efforts of late on the part of the government to bring the small borrowers, including the farming community, within the fold of the corporate business houses – the most recent example being the farm laws that were rolled back finally after a year-long farmers’ agitation.”
“We believe that the SBI has the capacity to increase farm and micro, small and medium enterprises (MSME) credit through its own branches. It can convert its 71,968 customer service points into small branches, which will provide regular employment to youth and increase credit in the rural and semi-urban areas,” the statement says.
Last month, SBI joined hands with Adani Capital, the non-banking financial company (NBFC) of the Adani group, to co-lend to farmers to purchase tractors and farm implements.
In a statement, SBI had said, “With this partnership, SBI would be able to target farmer customers in the interior hinterland of the country looking for adoption of farm mechanisation to enhance the productivity of crops.”
“This partnership shall help SBI to expand customer base as well as connect with the underserved farming segment of the country and further contribute towards the growth of India’s farm economy. We will continue to work with more NBFCs in order to reach out to maximum customers in far-flung areas and provide last mile banking services,” Dinesh Khara, chairman of SBI, had stated.
However, the Peoples’ Commission says public sector bans (PSBs) like SBI have had a great role in reducing income inequalities, minimising regional imbalances, and ensuring affirmative action to correct historical injustices. On the other hand, it says, “private NBFC’s capacity and operations are very limited and are driven exclusively by its overarching objective of maximising profits. We wish to express our deep concern at the RBI, whether deliberately or otherwise, contributing to this unfortunate situation in which small borrowers, especially those in the informal sector of the economy, have paid a heavy price.”
“We are rather alarmed by the fact that while the RBI has itself cancelled licenses and even blacklisted a large number of NBFCs (1701 in 2019 alone), it has permitted this arrangement of co-lending by banks and NBFCs. An arrangement such as the one cited here paves the way for NBFCs owned and controlled by the large business conglomerates to make a backdoor entry into the unorganised sector on a much larger scale, riding on the back of a banking behemoth, the SBI,” the Peoples’ Commission warns.
PSPSPS, in the letter, also recalls what happened in the banking sector after 1991 when private promoters were allowed entry into banking. It says, “...several public sector banks were forced to take over such banks in order to protect the interests of depositors. The subsequent entry of inadequately regulated NBFCs and the crisis that followed, especially at the hands of micro-financing agencies, which drove thousands of small borrowers to suicide is still fresh in memory.”
“Worryingly, we find that some of the NBFCs belong to groups of companies owned and controlled by corporate houses that are already heavily indebted to the public sector banks. Persuading the latter to co-lend with such NBFCs would involve a conflict of interest that could adversely affect the interests of the banks’ depositors,” it added.
Considering that the NBFC sector is inadequately regulated and, therefore, poses risks that the economy can ill-afford to bear, the Peoples’ Commission says it feels that there are compelling reasons for RBI to stop issuing licences to corporates to run NBFCs. “We demand RBI review its policy on persuading the banks to tie up with the NBFCs for co-lending to the borrowers, as it would yield no benefits to the banks, nor would it be in the long-term interest of the small borrowers.”
The PCPSPS statement is endorsed by TM Thomas Issac (former minister for finance, Kerala), justice Hari Paranthaman (retd) (Madras High Court), Aditi Mehta (former additional chief secretary, Rajasthan), Dr CP Chandrasekhar (retired professor, Jawaharlal Nehru University), EAS Sarma (former secretary, Union ministry of power & economic affairs) and Indira Jaising (senior advocate, Supreme Court of India), among others.