 Hello and welcome to NewsClick. The banking sector in India is in deep crisis and more and more scams are coming out. To discuss the issue we are joined by Thomas Franco, General Secretary of IBOC. Welcome to NewsClick once again, sir. So let's start from what actually has happened because what has led to such deep crisis in the banking sector? Scams are coming out every day and the quantity of the scam is also increasing every day. CBI is telling new figures every day. See, historically if we look at 1947 when we got independence, banking system was weak. Imperial Bank of India was there, which later on became State Bank of India. But other than that, that was considered as a government bank. The rest of them were all private players. They were not able to cater to the demands of the people. And one report says that on an average every year 45 banks were collapsing. And R.K. Hazari in 1964, a great economist who was in the Planning Commission, submitted a report saying that unless the clutches between the corporate or business, big business and the banks are removed, banking system will not be able to help the growth of the country and the common man of the country. This was the basis for nationalization. When nationalization was brought in, nobody talked about profit. Mrs. Gandhi did not talk about profit. Parliament took up this issue for debate for 11 days continuously. Subsequently, the owners of these private banks, which were nationalized, 14 of them in 1969 and in July, they went to the Supreme Court. A 12-member bench had this case. It was had for almost 25 days. And finally the court also ruled that nationalization is necessary for the growth of this country. Now people are talking suddenly about private decision. Historically, private sector could not cater to the need of the people. For example, 1967, the outstanding credit, not even 2% was going to agriculture. Northeast, hardly there was any bank branch. Eastern part, western part. Only cities had branches. Rural areas did not have branches at all. So this nationalization was brought in for 4 reasons, to increase the banking outreach, to improve the credit availability to the common man, especially, specifically, farmers, artisans, cottage industries and small scale industries. Number three, to improve the quality of staff when giving them a good salary as well as a performance-based system. Number four, to stop the credit gap across the country. There were some places where there was credit available, some places there was no credit. The credit deposit ratio became a criteria after this. Between 69 and 1990, if you see, there are various studies which have shown that the banking sector grew up so well and the credit of take went to the common man more. I'll just quote you an example from the RBI statistics. 1991, the RBI data says that out of the total credit given to the banking sector, 99.7% of the accounts amounting to 36.7% of the total credit went to small people, less than 2 lakhs. And lot of them even around 25,000 or less than 25,000. So actually, the farmers were getting credit, small industries were cottage industries were artisans were getting credit. We had an IRDP program which reached lot of masses of this country. But 1991, suddenly there was a policy level changes after the IMF hold bank loan. They put a condition that you should move towards privatization. The Narasimha Committee came with a report saying that banking is a business. It is not charity. You cannot just keep doing only service. So you should look at profits. Then only the direction changed. They started lending more to the corporate. They started changing the priority sector and lending norms which the government itself kept on changing. So though even now there is a criteria that 18% of the credit should go to agriculture, it is not going. And agriculture has been made so vast that even a water bottling plant becomes allied agriculture. Diaries with thousands of cows is also allied agriculture. Milk processing that is also allied agriculture. Huge horticulture farms that is also agriculture. So real farmer is not getting credit. He is angry. He gets into frustration when he is going to the money lender and he is harassing. He is committing suicides. So this crisis was brought in because of this change in policies. There were four or five things quickly they did. One, they removed one scheme called credit authorization scheme. Under that scheme, earlier there was a provision that any loan above 1 crore to 1 corporate or 1 individual, you will have to go to the RBI for formation that is CRAFT. Then they removed the monopolies and restrictive trade practices act. So now any company can have monopoly over any business and the banks can also continue to learn. So 1 corporate is able to avail crores and crores of credit. Number three, they reduced the staff strength. For ten years they stopped recruitment. Automatically the strength in the banks went down. 2001, they gave a voluntary retirement scheme which was very attractive. 1,26,134 people left the banking system. Suddenly banks found it very difficult to cater to the small man. The small creditor, see for example I was a branch manager of three different branches. I would have found always that instead of giving 1 crore loan to one man, if I have to give loan to 100 people, 1 lakh each, I found it difficult. Because I was not supported with adequate staff. So this changed the pattern of credit to people. This has led to a situation today. 2016 data of Reserve Bank says that 36.4% of the credit has gone to corporate above 100 crore limit. And this is only just 11,643 borrowers. Okay so are you talking about these NPAs that NPAs are not the only reason for this situation right now that banking sector has reached this level? And you are talking also about various norms that are there which needs to be looked into. Can you throw some light on these norms and what are the different clauses or changes that are being made? See now the non-performing asset is being blown out of the proportion due to change in the norms brought by Reserve Bank of India itself. It's not that there was no NPA earlier. The day of banking started NPA has also been there because banking is considered as a credit risk. Lending is a credit risk. So in that risk there is always scope for a small failure also and banks had been writing off. I am in the bank for 40 years. From the day I joined I have seen that a small portion of the loans which do not come back it used to be written off and that was possible because those days the loans were small loans. So even if you write off loans of lakhs of people which will be say 25,000, 10,000, 50,000 it does not affect the banks balance sheet as a whole. But now what has happened is after 1991 the asset classifications were changed. Earlier we had been classifying asset into 8 categories. That was brought down to 4. Then again in the initial stage the asset classification was such that a time loan which is normally a longer time loan it is considered as an NPA only if there is a default for more than a year, 360 days now. Subsequently that norm was changed into 180 days. Again it was reduced to 90 days. Then again it was reduced to 30 days. Now the problem is a borrower will have his own problems either due to personal reasons or maybe due to the industries downfall. Now immediately you classify it as NPA you do not give them further credit. He gets into further crisis. Few examples I would like to quote. One is a housing loan. It is fully secured with the property. The land and building is mortgaged to the bank. One installment you are defaulting immediately that is classified as NPA. We send a notice that fellow will come back after 15 days, 20 days. He wants to regularize. Then he has to pay two installments or three installments together then only it becomes regular. Our question is an asset which is supporting this loan. Why it should be declared as an NPA in one month? You should have different criteria for different type of loans, for education loans. A boy has not got a job. So though the moratorium period ends in six months after he completes his course, if he does not get a job he will not be able to repay. It does not mean that he does not have any intention to repay. So there should be a provision that you extend that period. The day he gets a job he will start repaying along with the interest of the previous period also. Similarly in the case of loans given to the business, mainly the medium and small industries, there is always a seasonal up and down. Now the moment you say that you are not servicing the interest in 30 days so your account has become NPA, he gets into a crisis. He has to whatever money he has he has to first come and deposit so that he regularizes the account. Maybe that is the time he will require more money. That is why Reserve Bank earlier had created some provisions like there was a corporate debt restructuring. An industry if it is not doing that well, they were allowed to restructure the loan. The repayment period was extended. Then they brought a scheme called SDR, then they brought a scheme called S4A. In all this restructuring was possible. That was mainly to help that industry so that they survive. Now the Reserve Bank of India has announced that all these loans which are 180 days NPA, immediately you have to transfer the whole thing to NCLT, National Company Law Tribunal through this IBC. What happens is that the moment you transfer this account, the bank has to create 50% provision. What is a rationale? All these loans in our country are supported by backup. Collaterals are available, securities are available. Do they think that the second year they say another 50% has to be given provision? That means nothing will come back. What kind of rationale is that? You have so much of security to fall back. There are laws under which you can surface the act is there that the banks can proceed against and get it. But the moment you ask for 50% provision, the bank will get into a crisis. The biggest risk we are seeing is that if this norm is implemented in this quarter, all the banks in the country will be making a loss. Public sector banks and some of the private sector banks also. That will lead to a serious crisis. Here the Reserve Bank and the Finance Ministry has to intervene. See, Parliament in February 2016, they submitted a report to the Parliament by the Standing Committee on Finance, exclusively on NPA. That we have brought it out as a book and we have published, we have sent it to the members of Parliament. Now once again I have sent all these books to all the members of the Parliament so that they take it up for a debate in the current session of the Parliament. The Standing Committee has analysed the root cause of the problem. They say that the major cause of the problem is because the industry has not been growing. Number two, the government consciously closed down development financial institutions or diluted them or converted them to commercial banks like you had the ICICA, IDBA, HDFC. All these have been converted into banks and there were agriculture, refinance, corporations and all that has been closed down. So what happened? The Standing Committee says that this gap had to be filled by the commercial banks which were forced by the Finance Ministry itself. That you lend to this sector and that is how they lend to steel, which is a long-term power sector. Power, at one point of time we had shortage of power. They encouraged lot of private flyers. Banks were asked to lend to them. Now the photovoltaic cells have become cheap. Solar power has become cheaper. So those units which were producing power using thermal or gas, they have got into a crisis. Nobody is willing to buy their power. So the problem was created by the government itself and this government only asked us to lend to this sector. Otherwise it should have been financed by the government itself. What was the reason they forced this? Suddenly the government decided that we should reduce our fiscal deficit. So we will not use the government money for building infrastructure. That place has to be through a public-private partnership. There is nothing private in public-private partnership. The entire private money is taken as loan from the public sector banks. So it is only a public-public partnership. Now they have taken the loan. They are not able to succeed in the business. Infrastructure, coal, mining. These are areas where the banks had to get in telecom. Again it was this government which though MTNL and BSNL were doing well, without allowing them to even participate in the mobile auctions in the initial stage, they cautiously promoted the private sector plans. Now Reliance has come into, Reliance, Jio today's newspaper, they say that they are going to reach 99% of the population. So the rest of the fellows will have to collapse and you have encouraged that. You have supported Reliance Jio in many ways. So what happened? The telecom sector is under stress. The Surabhanga of India now it is saying for even a standard asset where interest is coming, repayment is coming, the banks have to keep a provision of 10%. Saying that tomorrow this is likely to collapse, so now itself you keep this provision. So the Parliament Standing Committee says that these loans which are basically infrastructure loan, which you did not want to invest and ask the banks to provide the credit, they have got into stress a way out as to be found. They are also giving very clear recommendation. One simple recommendation if it is implemented, this crisis will be out over. They are saying that these loans which are given to this particular sector, let it be taken over by the Industrial Finance Corporation, which is still a development financial institution, which can convert it into a long-term finance. Then the industry will also survive and the banks' books also become clean. Then banks' capital adequacy requirement goes down. They are able to lend more and if they start lending more to the other sector, the economy will grow and that way growth will be there in the country. Employment will grow, economy will grow. So our appeal immediately is that within this month, that is within March, the asset classification norms should be changed. A scientific analysis has to be done and on that basis you change the norms so that the banking sector remains robust. See, in 2011 to 2013.5% was the gross NPA. Banking system did not collapse. Now it is only 9.5%. But as because you change the norms, the problem has become bigger. So it is high time they have a relook for that. Finance Ministry and Reserve Bank has to work together. Already I think many of the banks are also taking up this issue with the Reserve Bank and it is high time they act. Otherwise we will be leading towards a major financial crisis. So are there any such bodies which are there in public sector banks which have board of directors whose task is to ensure this check-in balance and ensure that these clauses are looked after? Are there any such bodies there? As soon as 1969 nationalization came, the act was passed in 1970. During that time when the act was discussed in the parliament, it was Mr. Madhuli Mahi as member of parliament. He raised this issue asking for amendment in that act saying that there should be a representative from the employee side. One is participatory management. Another is a watchdog role. So for that he proposed that there should be directors representing the employees. So the parliament consciously decided that there should be an officer director and there should be a workman director. And this name should be recommended by the majority association or unions in that particular bank. Three names have to be recommended based on which they will do a due diligence, they will do a vigilance inquiry and if they are clean then they are appointed and normally the first name recommended is considered for appointment. And this has been in the practice from 1970 onwards. Under the Nationalization Act there is section 9 within bracket 3 and in State Bank of India Act it is section 19. Under these two provisions, these public sector banks have been having this officer director employee director. The condition also says as per the finance ministry's directive that before a person retires, six months before the bank should recommend another person so that there is no gap. Banks had been promptly recommending this name. We from the association had been promptly giving the names and it was getting recommended. Regular appointment was taking place till this government came to power. After this government came to power in only in one particular case a person whose stamp came to an end, he was given an extension. After that all the recommendations are pending with the prime minister's office for no reason. We don't know. We had been going to the ministry pleading with them. When we met the finance minister also we pleaded with him. He appeared to, he acted as if he is not even aware of what is happening. But this we represented to him once back. We wrote to the prime minister. We wrote to the finance minister. We wrote to the DFS secretary. We wrote to reserve bank because the appointment is supposed to be done in consultation with reserve bank. None of them have taken action. So what has happened is that watchdog role is gone. These are the votes which decide on all large advances. These are the votes which decide on write-offs. These are the votes which discuss about the NP accounts. The votes are supposed to follow up every loan above 5 crores. So the board member will know what is happening. And as an organization representative when he is in the board he will be able to question wrong decisions. And if the board does not agree also organizationally maybe at times we can go on a program agitation to see that something wrong does not happen within the system. That has been totally taken away. Left with no other alternative we filed a case in the High Court of Delhi. The case was admitted on December 3rd 2017. The government was asked to submit a report within 28th February to the court. Today the case came up for hearing. The government representative has not come with any reply. RBI advocate also came without any reply. Again asking for time. Then we said that there is no need for giving so much of time because everything is available. Law is clear. Recommendations are lying with the PMO's office. It's a matter of seconds for them to decide and say. There is no way they can change the law now. In fact 1983 there was an attempt to change the procedure so that government can appoint any employee or any officer as per their choice. We went to the court from the All India Bank office's confederation and Supreme Court gave a ruling that there should be a representative character. So it should be an elected representative of the majority union association. After that the practice continued. But now they have not been acting. And now we are left with no other alternative than going to the court and that is also not yielding results. We will be going for agitations. We will have to expose to the public. We will have to go to the member of parliament to take up this issue. This is a very serious concern. Government talks about transparency. But in practice they are a fact. Thanks a lot Mr. Franco for pointing out these things and I am sure these things are going to proceed in future also and hopefully the government is listening to you and it will take all your things into consideration and maybe the banking sector may soon see a change. Thank you very much. I am also hopeful that the changes will take place like I should thank NewsClick. The interview we had on the FRDA will that has reached millions of people and that has created an impact. Thank you very much. Thank you for watching NewsClick. Keep following our website and our Facebook page.