Dear Sir,
Amidst your pre-occupation with the finalization of proposals for the ensuing Budget, from the All India Bank Employees Association we wish to submit the following viewpoints and suggestions for consideration by the Government and necessary incorporation in the Budget.
Everyone is aware that our All India Bank Employees Association, which represents nearly half a million bank employees working in Public Sector Banks, Private Sector Banks, Foreign Banks, Regional Rural Banks, and Co-operative Banks, is deeply committed to the vibrant role of banks for the economic development of our country. To enable Banks to play this role, AIBEA demanded nationalization of all Banks in our country. After great deal of campaign, struggles and strikes by bank employees, in a major political initiative, Madam Indira Gandhi nationalized 14 big Banks in 1969 and later another 6 Banks in 1980. Thus, Public Sector Banking has become the mainstay and engine for taking the banking sector forward with its destined social responsibilities.
The role and contributions of our Public Sector Banks in the last 4 decades has been commendable, admirable and spectacular. Besides meeting all international norms and standards, our Banking system in India has proved to the whole world about its inherent strength even in the wake of the global economic crisis in which many giant banking institutions have withered away into thin air.
While these are positive aspects of our PSBs, we are concerned that our Banks should be further enabled to play a more leading and catalytic role for the development of our economy. While we are aware that the Government is equally, if not more, conscious about the important role to be played by our Banks, we feel it necessary to make the following suggestions and submissions.
1. Public Sector Banks to remain in Public Sector and no reduction in Government’s Equity to less than 51 % : In the name of liberalizing our Banks, an amendment was made in 1994 providing for reduction in Government’s equity capital in PSBs from 100% to 51% and permitting private capital upto 49%. This has greatly reduced the Government’s control on the Banks. Further, the Boards of these Banks are also necessarily represented by the private capital to that extent. There have been hue and cry that this threshold limit for Government’s Equity should be further reduced to less than 51% paving the way for increasing private capital to more than 49%. This would be direct de-nationalisation and privatisation of Banks. However we are happy to note that the Government has consistently maintained that it will at any cost maintain 51% share-holding in the capital of the PSBs. While this a major welcome and progressive decision, there are various recommendations of a number of Committees which have recommended for reduction of Government’s capital to less than 51%. All these recommendations call for an outright rejection by the Government and announced accordingly in the Budget, to remove the apprehensions of the people at large about any imminent privatization of the PSBs.
2. No loan from World Bank to capitalize Public Sector Banks: It is learnt that under the pretext of shoring up additional capital to the PSBs, the Government has decided to avail a $3 billion loan from World Bank. While further capitalizing the Banks is a welcome measure, one cannot brush aside the possible conditionalities of the World Bank attached to these loans which will bring our PSBs, directly and indirectly, under pressures from World Bank to comply with their prescriptions. Hence we submit that the Government should not proceed with availing the loan from World Bank to capitalize our Banks.
3. Do not amend/delete Section 12(2) of B.R. Act : There are repeated proposals to amend Section 12(2) of the Banking Regulations Act, 1949, more so to delete this section which today stipulates a ceiling of 10% on the voting rights of share holders in our private sector Banks. Needless to point out that deletion of this important condition will facilitate hostile take over of our private banks by vested interests and big business including by foreign capital who can today enter our banks upto 74% of capital with the permission of RBI. This will be a retrograde step and hence it is submitted that the Government should drop the proposal to amend / delete Section 12 (2) of Banking Regulation Act.
4. Expansion of Banks in unbanked rural areas: While public sector banks have grown impressively in the post-nationalisation era, it is equally a reality that total financial inclusion is still far away. Abut 500 millions of our Indian people do not even have a bank account and hardly 12% of the population has access to banking credit. While thousands of branches have been opened by PSBs in the rural and semi-urban areas, it is still meagre when more than 5.50 lacs of villages in our country do not have the services of a bank branch. Hence, to achieve the objective of financial inclusion and financial empowerment, bank branches have to be opened massively in the un-banked rural areas. In this context, a clear policy guidelines should be announced in the ensuing Budget.
This is all the more necessary because in the last few years the banks have been opening more branches in the already banked urban / metro areas instead of in the villages.
5. Do not proceed with consolidation and merger of Public Sector Banks: There are also repeated pronouncements about consolidation of banks in the public sector - both of nationalised banks as well as of the Associate Banks of SBI. Compared to any other country, our banking system has not saturated, rather there is a vast space for expansion. We feel that consolidation and merger of banks in public sector are unwarranted and the same is wrought will various negative consequences which would be contrary to the basic objectives for which banks were nationalised by Smt. Indira Gandhi in 1969.
6. Banks should come within the purview of Competition Act, 2002: There are reports that RBI has proposed for exemption of Banking Sector from the purview of Competition Act, 2002 which will enable the Banks to merge or consolidate without any scrutiny by the Competition Commission of India. We strongly feel that no exemption from this Act should be given to the banking sector, rather, a notification should be issued under the Act stipulating that any consolidation / merger exercise should fall within the scrutiny of CCI.
7. Recovery of Bad Loans – the top priority: Another aspect which has been disgusting has been the mounting bad loans/Non-Performing Assets in the Banks. While the Balance Sheet figures indicate some reduction, it is well-known that such reduction is due to various factors like provisions, write off, interest waivers, one-time settlements, compromise proposals, re-structuring, etc and not due to recoveries. In fact, in all the Banks, new bad loans are being added every year and the amount is also substantial. We have the following demands in this regard.
a. Periodical publication of list of Bank loan defaulters of Rs. 1 crore and above.
b. Defining willful Bank loan default as a criminal offence.
c. Further strengthening the powers under Securitisation Act including
powers to attach the personal properties of Directors, partners,
owners.
d. Prohibiting bank loan defaulters from contesting / occupying Public Offices.
e. Stringent measures to recover the huge bad loans in Banks.
8. Banks should fulfill priority sector loan targets: Of late we find that Banks are not reaching the targets prescribed for priority sector loans and especially agriculture loans including direct lending the agriculture. Priority sector loans should be stepped up. Action should be taken against non-compliance of targets under agriculture / priority sector credit. More loans should be given to SMEs, for employment generation, poverty alleviation, housing, women empowerment, rural development, etc. Interest free loans should be given to very poor sections for economic survival and sustenance. Small and marginal farmers should be extended loans at 4% interest.
9. No privatisation or outsourcing of Priority Sector Loans: There are attempts and tendencies to indirectly privatise the priority sector credit by allowing the Banks to reach the targets through loans given to private sector for these purposes. It is nothing but outsourcing the social obligatory responsibilities to the private sector. This should be discouraged and stopped and Banks should be asked to directly extend credit to priority sector.
10. Stop outsourcing of Agriculture sector credit: Even Agriculture sector credit is privatised and outsourced by allowing the Banks to re-finance the loans given by private micro credit organizations and showing them under loans given to Agriculture Sector. This should be also be discouraged and stopped.
11. Bring all Private and Foreign Banks under Public Sector: While the public sector Banks in India have shown their strength and dexterity, we find that private sector banks including the so called big banks like ICICI Bank are very fragile. In the recent years also number of private banks had collapsed and RBI had to clamp moratorium on these Banks and hence the Government should consider bringing all private and foreign banks in our country into public sector.
12. Release of Funds for Long Term Co-op. Banks: The UPA Government constituted a Task Force headed by Prof. A. Vaidyanathan which has recommended that the Long Term Agricultural Co-operatives Banks, namely, Agriculture and Rural Development Banks (ARDBs) need to be rehabilitated and revitalized by infusion of necessary funds in the form of Recapitalization. The Task Force has recommended for Rs. 5600 crore for Long Term Sector Agricultural Co-operative Banks. However, the Ministry of Finance, Government of India, redefined and reduced the financial relief to Rs. 3070 crore, which amount was approved by the Cabinet of the Central Government in its sitting held on 25.2.2009. While we are happy that the Government of India has taken the decision to provide the package of relief measures for improving these Agricultural Credit Institutions which are meant for providing infrastructure advances for improving the farm production, unfortunately, there have been no funds forthcoming from the Government. It is an urgent imperative that the Government should release the funds earmarked for revitalizing Agriculture and Rural Development Banks to ensure higher growth in farm production.
13. Need to revitalize Urban Banks: Some of the Urban Co-operative Banks in our country are today facing threats of closures as they are affected by liquidity crunch. Shri V.S. Das Committee constituted by the Reserve Bank of India has recommended for the evolving of Umbrella Organisation for rendering liquidity support to the Urban Co-operative Banks in distress through Emergency Fund Facility Scheme. This Committee estimates a sum of Rs. 2500 crore maybe required for the purpose. It is necessary that this financial assistance be made available by the Central Government and State Governments and a pronouncement in the ensuing Budget would help the Urban Co-operative Banks which are in acute distress. It is also suggested that the weak Urban Co-operative Banks may be merged with stronger Urban Co-operative Banks or the Dist. Central Co-operative Banks or the Public Sector Banks may take them over with the consent of the Central Government.
14. Exempt profits of Co-op. Banks from Income Tax : The Profits of Co-operative Banks should be exempted from Income Tax as in the past and amendment to Section 80 – P of Income Tax Act made in this regard should be repealed
15. To bring about standardisation of service conditions for employees in Co-operative banking sector: About 90% of Short Term Agricultural Co-operative Banks have been brought under the purview of NABARD and the Long Term Agricultural Co-operative Banks also would be brought under the purview of NABARD as per Task Force Report. Hence we submit that the Ministry of Finance, Government of India, may constitute a National Joint Consultative Council under the Chairmanship of NABARD for considering some standardisation and uniformity in matters relating to the service conditions and welfare measures for the employees working in the various tiers of the Co-operative Banking sector.
16. Merge RRBs with sponsor Banks: There have been substantial improvements in the functioning of the Regional Rural Banks. But they are functioning as independent Banks and in many cases are unwarrantedly required to compete with the nationalized Banks. Hence there is a case of merger of RRBs with the sponsor Banks. We submit that the Government of India may consider merger of the RRBs with the sponsor Banks.
17. Encourage Savings: We submit the following suggestions for encouraging savings.
a. Interest on Savings Deposits in banks should be increased to 5%.
b. Interest on Bank Deposits upto Rs. 15 lacs per year should be exempted
from Income Tax. Already Dividend Income is tax free.
18. To raise I T exemption limit for bank employees/salaried class employees: As for the bank employees, there is a genuine demand, as like other salaried sections, for some more relief under Income Tax by raising the exemption limit to Rs. 3,00,000.
19. Bonus Act and Gratuity Act: There has been a long pending demand of bank employees for Bonus eligibility to all employees and officers and for increasing the existing ceiling of Rs. 3.5 lacs under the Gratuity Act to Rs.10 lakh.
20. Pension scheme for employees of Regional Rural Banks and Co-operative Banks: Today employees and officers in Public Sector Banks, Private Sector Banks and Foreign Banks are covered by the pension scheme while the same is deprived to employees/officers of Regional Rural Banks and Co-operative Banks. We submit that the Government should consider introduction of some scheme for these employees also as pension is a social security measure.
21. Encourage small savings through Daily Deposit Scheme in Banks : While the Government and the Banks are seeking to increase the rate of savings, there is an attempt to do away with the Small Deposits Scheme / Tiny Deposit Schemes/Daily Deposits Schemes in the Banks. Banks must be advised to desist from it and go for more small savings rather than high cost deposits from the corporates and industrial business houses. There is also a need for sympathetic consideration of the minimum service conditions of the Daily Deposit Collectors in the Banks pending for a very long time.
22. Income Tax on Fringe Benefits: The Tax on Fringe Benefits and perquisites has recently been ordered to be collected from the employees instead of from the employers. We request the Government to restore the earlier provisions.
23. Pension Trusts of Private Banks to be exempted like PSBs: After the introduction of pension scheme for bank employees in the public sector Banks and private sector Banks in 1993, all Banks have formed their respective Bank-level Pension Fund Trusts. While the pension trusts of the public sector Banks are exempted to have their own administration of the Fund, in the private banks, they are not exempted and hence they are required to purchase Annuities at a very high cost. Hence it is submitted that private Banks may also be exempted similar to PSBs.
24. Revisiting Section 17(2) of IT Act : Under Section 17(2) of Income Tax Act, contributions above Rs. One lakh to pension fund in private Banks by the employer on account of their employees have become taxable. There is a need to reconsider this and restore the erstwhile exemption.
25. Revive BSRBs for recruitments in Banks: Earlier, Banking Service Recruitment Board was set up by the Government to undertake the recruitment processes in the Banks. Subsequently this have been abandoned. Since many Banks have once again started recruitments in the Banks, there is an urgent need to revive BSRBs and have the common agency for recruitment of staff in the Banks. Since the Banks have started recruitments in the Banks, revival of the BSRB is necessary. Today, all the Banks are undertaking the recruitment process individually and through private agencies at very high cost. This is resulting in duplication and wastage of public money. This will also help the educated unemployed youth as BSRB will be a single point agency for recruitment of staff.
Sir, we have submitted our above viewpoints and suggestions in the best interest of our Banking system, our economy and our people at large. We are sure that the same would receive your positive consideration.
C.H. VENKATACHALAM
GENERAL SECRETARY
ALL INDIA BANK EMPLOYEES' ASSOCIATION
Central Office: “ PRABHAT NIVAS ”
Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
Phone: 2535 1522, 6543 1566 Fax: 4500 2191, 2535 8853
chv.aibea@gmail.com
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