FM Mr. P Chidambaram has started diecting nationalised banks to lend liberally - keeping an eye on the coming General Elections in 2014. The Finance Secretary is reported to have already prepared the ground by giving several directives to nationalised banks asking the banks to get out of their slumber. One nationalised bank Chairman has joined the bandwagon -looks like part of the FM orchestra- stating that the nationalised banks should start assuming risks. When you piece all these exhortations which have some in a predetermined fashion ( with the ruling party determined to succeed in the ensuing g General elections by hook or crook) it is clear that the nationalised banks will accumulate bad and doubtful debts ( called non-performing assets technically following the Narasimham Committee report) again , after a lapse of about twenty five years. Last time it was Janardhan Poojary who goaded the nationalised banks to lend left and right after which the banking system faced a huge amount of bad and doubtful debts which took almost the lst twentyfive years to recover. Now, Mr. Chidambaram has restarteed the election exercise.
It is common knowledge that loans are disburesed by banks out of the deposits made by the Public. When the loans turn bad the Government in power directs the banks to write off. This results in deterioration in the financial health of banks which hold the money of the public. If the banks fail, it is the depositors - in lakhs- that suffer. The FM ofr the Finance Secretary responsible for the sorry state of afairs will not own any responsibility. When the Finance Ministry does bad things, RBI remains a silent spectator since the Governor is to be appointed by the same Finance Ministry. Recently a special body has been constituted called Financial Stability & Development Council chaired by the FM and participated by RBI, SEBI, IRDA, Finance SEcretary etc. Mr. Chidambaram has not taken the present move to that body even for a discussion enabling RBI, SEBI etc to register their views.
Now, my points/issues are as follows:-
1. In a situation such as the one detailed above where the public money ( not Government money) is used for political purposes - what is the legal avenue open to the lakhs and crores of depositors in nationalised banks to resist such a move on the part of the FM ? There is no national forum of bank depositors known to me which can take kup the issue.
2. The Government may say that the publisc sector banks are owned by the Government and as such they can direct them to do as the Government likes. My reply for that is as follows. It is only the share capital in the banks that is owned by the Governent - not the deposits made by Public. Loans directed by the Government are given out of the public money and not the out of the share capital. Hence the Government has no right to give directions as to how the banks should lend the public money. Is not FM bound by this principle ?
3. Granting that FM can give directions to the banks under his control on policy matters, my query is - What are the Boards of Directors of the respective banks are for, if the FM and FS micromanage the banks from the North Block. If they have any suggestions to make the Government is entitled to send a letter to the Chairman and the Chairman will then discuss the matter at the following Board meeting and onvey the Board's decision back to the Government. That is true corporate governance for which the Government has incorporate a special body. May I suggest that the FM make a reference that body tomorrow an seek its views on this issue - namely whether the Government can send directives on bank,s administrative matters overlooking the Boards of Directors whom the Government itself has appointed. What kind of Corporate Governance is prevailing in the nationalised banks today ?
We have to find solutions to the above soon as time is running out and the process of disbursing loans may well start soon - irrespective of whether the borrower has the capacity to repay the loan or not. We normally cry after the event. Here is a different case. I am crying before the happening of the event.
J Krishnamurthy
A sevenyfive year old citizen & a qualifed CA & CS
