The crisis facing banks in India has been brewing for some years now. A large and growing share of the outstanding loans extended by commercial banks has turned into bad loans or Non-Performing Assets (NPAs). Any loan for which the principal or interest payment has remained overdue for a period of 90 days or more is called NPA. It is a loan which the borrower is not paying back as agreed.
Gross NPAs of private and government owned banks whose shares are listed in the stock market jumped from Rs. 3,00,000 crore on 31st March, 2015, to Rs.5,80,000 crore by 31st March, 2016. It has increased even further to Rs. 6,15,000 crore by 31st December, 2016. The ratio of gross NPAs to total outstanding loans is already above 11 percent and is continuing to rise. The Financial Stability Report published recently by the Reserve Bank of India said, “the public sector banks’ gross NPA ratio may increase to 12.5 per cent in March 2017 and then to 12.9 per cent in March 2018, from 11.8 per cent in September 2016”.
The money lent to capitalist companies belongs to the people who have deposited their savings in the banks. When capitalists default on their loans, it poses a risk to the depositors. Working people face the risk of losing some or all of their hard earned savings if the bank declares bankruptcy, meaning that it does not have enough money to honour all its obligations.
Concern about rising amount of bad loans has been raised by bank workers’ unions since many years ago. However, it was deliberately kept hidden by the central government and the managers of banks. The truth started getting exposed in 2015, as a result of the requirement enforced by RBI that all listed commercial banks must comply with international standards of accounting and provisioning for NPAs.
What is getting more and more exposed is that the Government of India and Reserve Bank of India are together protecting the interests of the big capitalist defaulters who have landed the majority of banks in crisis. Working people are being made to bear the burden of the crisis created by capitalist loan defaulters. They have been compelled to deposit all their savings with the banks, which have started lowering the interest paid on such deposits following the Note Ban.
Monopoly capitalist domination
Capitalist monopoly houses dominate all major economic decisions, including the approval of loans amounting to hundreds of crores of rupees. This is the principal cause of the banking crisis.
The biggest of the capitalist companies receive the largest amount of loans from banks. The ten biggest borrowers among the monopoly houses had total outstanding loans of Rs. 7,32,780 crore owed to government-owned banks as on 31st March, 2015. The list was headed by Reliance, Vedanta, Essar, Adani and Jaypee groups of companies. The monopoly houses manage to get such loans approved for any kind of investment or speculative gamble. As long as they reap maximum profits, they service the bank loans. When their expected profits are not realised, they stop paying the banks.
If a peasant or small business takes a loan from a bank and does not pay the EMI for one month, the concerned bank takes steps to recover the loan, by seizing hold of the assets that it holds as security. However, when big capitalists default, the banks do not respond in the same way. The big capitalist borrower calls up someone in power and high level meetings are held to find a way to shift the burden on to the backs of the public at large.
The capitalist monopoly houses influence the behaviour of bank managers through multiple channels. The Reserve Bank Board includes the Chairman of Tata Sons, Chairman of Mahindra Intertrade and the India chief of Bill and Melinda Gates Foundation.
Banks charge lower interest rate on loans to big capitalist companies than on loans to small businesses and farmers. The bigger the capitalist the lower is the interest rate and easier are the terms of repayment. Banks justify this by claiming that lending to big capitalists carry “low risk” as compared to other loans. When these so-called low risk loans turn into bad loans it creates a crisis, as has happened during the recent period of worldwide crisis of capitalism.
Thus, the root cause of the problem lies in monopoly capitalist domination of banking. Banks, which concentrate the savings of the population in their hands and lend money to productive enterprises to finance their investment and working capital needs, are effectively under the control of, and run in the interests of, the capitalist monopoly houses.
Reform Agenda of the Capitalist Class
For some years now, capitalist monopolies have been advocating and pursuing a reform agenda for banking in India, consisting of consolidation, digitization and privatisation.
Consolidation means to reduce the number of banks through mergers and acquisitions, thereby reducing the number of jobs. Just last month, the central Cabinet approved the merger of five subsidiaries with the State Bank of India (SBI). Digitization reform is aimed at enhancing the profitability of banking business. The newly created “payment banks” controlled by the biggest monopoly houses have started raking in maximum profits by charging a fee on every electronic transaction.
A plan for privatisation of a significant portion of the public sector banks has been under preparation for several years now. The plan is for the government to sell its shares so as to bring down public ownership below 50 percent. It is aimed at paving the way for capitalist monopoly houses to directly own and control banks. The Modi government is waiting for an appropriate time to implement this bank privatisation plan.
The advocates of privatisation claim that doing away with “political interference” will lead to an efficient and healthy banking sector. Doing away with state regulation altogether is not a solution, as is evident from the experience of the financial crisis that hit the American economy in 2008 and spread to encompass the whole world. Unregulated speculation by giant banks was the factor which precipitated the crisis.
The truth is that the capitalist class cannot regulate its own greed. It is up to the working class to take action to first restrict and ultimately eliminate the space for private profit maximisation in the economy.
Revolutionary Agenda of the Working Class
One of the immediate demands of over 10,00,000 public sector bank workers at the present time is that the Reserve Bank of India (RBI) must disclose the names of all capitalist loan defaulters and the Government of India must seize their assets to recover the loans they owe. Another is to fix command responsibility in the bank’s management and board of directors for approving the bad loans and punishing those who colluded with the capitalist borrowers to get such loans approved.
RBI is refusing to divulge the names of capitalist loan defaulters in spite of the Supreme Court ruling that it has to “comply with the provisions of the RTI Act and disclose the information sought by the people”.
The strategic aim of the working class is to reorient banking and all other sectors of the economy to fulfil human needs instead of bring oriented to fulfil capitalist greed. All banking activity must be oriented to fulfil the needs of social production and the needs of individuals and families for safe deposit and loans to meet emergencies. Interest charges on bank loans must be linked to the capacity to pay and not on “risk perception”. In sum, the solution lies in carrying out a thorough-going reorientation of the banking sector.
When many private banks were nationalised in 1969, the then Congress government headed by Indira Gandhi presented it as being a socialist reform. However, life experience has revealed that it was part of the monopoly capitalists’ agenda at that time. They needed the State to bear the cost of establishing thousands of rural bank branches, so as to concentrate rural savings in their hands.
The monopoly houses have been pursuing a new reform agenda since the nineties, under the banner of globalisation, through liberalisation and privatisation. With respect to the banking sector, their aim is to raise its profitability and to own the most profitable banks as part of their private empires.
The aim of the working class is to socialise banking. While nationalization is necessary, it is not sufficient. Not only must banks be brought under government ownership but the government and other agencies of the State must be under people’s control. The working class must capture political power in alliance with the peasants and other working people so as to establish social ownership and control over banking and reorient the economy towards fulfilment of human needs in place of capitalist greed.