Banking capital in our country is being rapidly concentrated through mergers and privatisation of public sector banks. The aim is to create a handful of giant monopoly banks, competing and colluding to make maximum profits. This is bound to have harmful consequences, both for bank workers and for society as a whole. One of the consequences is an ever higher degree of parasitism.
The income earned by banks consists of two major components: net interest income and non-interest income.
Net interest income is the difference between the interest banks collect from borrowers and the interest they pay on bank deposits. At the present time, most banks in our country pay 3%-3.5% interest on deposits in savings accounts and about 5.5% on fixed deposits of 1-3 year maturity. They lend money at much higher interest rates. They advance one-year working capital loans at 12%-16% and four-year investment loans at 15%-18% interest. They charge 11%-15% for consumer credit and 6%-7% for loans to the central and state governments.
When a bank lends money to a productive capitalist enterprise, the interest income it earns is part of the new valued added by productive activity. New value is added by the labour employed by the company which borrows from the bank. One part of the new value that workers create comes back to them as wage income, while the other part is the surplus value which accrues to their capitalist employer. One part of this surplus value goes to the bank which lent money to the company, while the other part is the profit pocketed by the company which employed the productive labour.
When banks advance loans to a salaried person to buy a two-wheeler, TV or washing machine, the interest charged is not coming from surplus value earned by capitalists. It is outright robbery of the hard-earned income of the working person who buys on credit. A portion of his or her salary goes to the bank every month in the form of EMI.
When a bank lends to the government, the interest income it earns is nothing but a claim on the taxes paid by the people. Year after year, a growing proportion of government revenue flows into the coffers of the big commercial banks. It is a form of robbing the entire people.
Non-interest income of banks includes the fees charged on credit cards, late payments, online payments, ATM transactions, non-maintenance of minimum balance, early withdrawals of term deposits, etc. Non-interest income also includes commissions earned on mutual fund transactions and gains made from trading in the stock market, currency and commodity markets.
As banks become bigger and grow into monopolies, an increasing share of their profits comes from non-interest income. Non-interest income has accounted for 30% to 40% of the total income earned by commercial banks in the past 10 years.
The fees which banks charge for various services appear to be very small, but when the volume of transactions becomes huge, such fees become major sources of banking profit. Expansion of digital payments has led to an enormous growth of such non-interest incomes of the biggest banks in the country.
The largest banks make enormous profits from speculating in the stock market, bond market, in currency and commodity futures. They frequently make more profits from such gambling activities than from lending for productive purposes. For example, HDFC bank, the biggest private bank in the country, reported a 20% jump in profits during the April-June 2020 quarter. Although economic activity and bank credit had slowed down considerably in this period of lockdown, HDFC Bank made huge speculative profits in the bond market to earn more than Rs.2500 crores.
Banks play a key role in mobilizing people’s savings for use by the capitalist monopoly houses, not only by lending to them the money deposited by account holders, but also by luring people to invest in mutual funds. Mutual funds are invested in shares of groups of big capitalist companies. Banks earn a commission every time they lure someone to invest in mutual funds. The size of the mutual funds business has grown four-fold in the past 10 years, from ₹ 6,30,000 crore in June 2010 to more than ₹25,00,000 crore in June 2020.
Following the international banking crisis in 2008, banks in India did not suffer much because of the limited exposure of state-owned banks to speculative use of funds. Now such restrictions are being removed, in the name of becoming “competitive”, which means to single-mindedly pursue maximum profits by any means.
In sum, the policy measures of the Government of India, aimed at creating a handful of giant-sized banks through mergers and privatisation, are going to greatly increase the domination of money-lending institutions over the economy. Monopoly banks will gobble up an increasing share of the new value added by human labour, like parasites which suck the blood out of healthy living organisms.
Parasitic Role of Banks in the USAThe USA provides a stark example of the high degree of parasitism which results from the concentration of money capital in the hands of a few profit-hungry banking monopolies.
In 2019, non-interest income accounted for more than half of the gross income of US$ 63 billion (equivalent to Rs. 4,75,000 crore) earned by the biggest American bank, JP Morgan Chase. This ratio was 45% in the case of Wells Fargo Bank, the second largest American bank. Moreover, a large and growing share of the net interest income earned by these banks come from consumer credit, student loans and other forms of looting the wage incomes of the working class.