 Hello and let's talk about the so-called reform in the banking sector. Last week, the internal working group of the Reserve Bank of India submitted a report which has alarmed experts in the field. A key recommendation in this report was that big corporates and industrial houses be allowed to be promoters of private banks. Now this has led to an outpouring of criticism in an area which few noticed otherwise. For instance, former RBI Governor Raghuram Rajan and former RBI Deputy Governor Viral Acharya in a joint article called it, perhaps a bit politely, a bad idea. We are staring at the prospect of some of the biggest business houses in the country which already have monopolies in many sectors, being able to enter the field of banking and have a control on the flow of credit as well, something that might only strengthen their monopolies. So across the world, as the chorus rises against the crimes of big private banks, India sets out to set up more of them. We talked to journalists on India Chakravarthy on this issue. Thank you, Arindu, for joining us. So first question, we saw the RBI's latest announcement. A very basic elementary question. Do we need more banks right now? We can come to what the private sector does. But right now, is there a need for actually more banking infrastructure, so to speak? Banking infrastructure, yes, in the sense of having more branches in maybe rural areas and the smallest of urban centers. But do we need more banks for that? I have no idea whether that is needed. Considering that the government actually thinks that merging public sector banks is a good idea. So they want to reduce the number of public sector banks, why they need more private sector banks, I don't know. Exactly. So that's the most interesting or maybe scary aspect of the announcement, the fact that the private sector is being brought in big time into this. And we know that for a long time, I mean, at least in the 70s and the 80s and then at least until the mid 90s, bank nationalization was considered like one of the most significant things the Indian government had done. And whereas what we saw over the past maybe 15, 20 years, is that there's a lot of, say, scorn port in the private sector. This whole thing about, sorry, public sector, that they're inefficient. Oh, it's government. It's not at the cutting edge of technology, your methods and stuff like that. But what service exactly and how would you, for instance, even keeping today's context distinguished between the kind of services the public sector banks provided. Whereas what the private sector banks have been doing. So I think when we talk about private sector banks being more efficient than private sector public sector banks being inefficient, you go there and they say, which still obviously does happen. It's not as if it doesn't happen. But this is all, you know, things that people like us care about. Right. We go to a private sector bank and we have a service manager or something like that who help us maybe say, do you want tea and stuff like that? Right. And ultimately they'll be as efficient or as inefficient as anyone else. But it just isn't a condition environment. People look more smartly dressed. They address you in a better way and they charge you for that. Right. So your minimum balance is going to be much higher to get any of those services in a public sector, private sector bank. People tend to forget that that is effectively a certain amount of money lost out. Right. But forget about that. So you're paying that to that private sector bank to keep a minimum balance every month so that you get that service. Right. Now the question is why don't these private sector banks go and work, set up offices in the rural areas? Why don't they ever provide loans to risky projects? Why don't they give farm loans? We should ask those questions. The entire logic of nationalizing banks is precisely that because private sector banks, which are all there, 14 big commercial banks were nationalized in 1969. They were all sitting there. They didn't give any loans to farmers. They didn't give any loans to priority sectors. Private companies which were associated with those banks, essentially took loans and gave it to each other. Now, as Vivek Kaul has written recently and he's quoted a committee, I think which was overseen by Chandrasekhar in 1967. You know Chandrasekhar at that time, who became prime minister later on was one of those young Turks who was on the side of, who was considered to be left in the Congress. And Chandrasekhar's committee report showed that about, if you take bank directors, right? These directors were common. They were people who sat on bank boards and they sat on another 1100 odd companies, private company boards. And these same people, if you looked at the direct and indirect loans and advances given to these directors and their affiliates, that accounted for more than a quarter of all outstanding loans at that time. So if you think about it, that is what private sector banks were doing. They were nationalized because they were not lending to anyone other than their own cronies, right? Most of the loans were given to them. And we know what that means, right? Because you know Prashant, when I was a child, I used to think that banks are meant to keep your money safe, right? Because if you kept it at home, it'll get stolen. So you put it in the bank. So they'll keep it safe. So you don't have to worry about a thief or a robber coming into your house at night. And I was pretty surprised when I learned that, I think I was maybe seven, six, seven years old when I learned that interest is paid on what you put in a bank. So not only was the bank keeping your money safe, they were actually paying it for you. It's only later that I realized that it takes our savings and give it to someone else. They charge a higher interest rate on the loan they're giving and give us a lower interest rate on the money we are depositing. And that gap is what a bank earns, right? So that is when we talk about an individual bank. But think of the economy as a whole. Banks are an instrument or a medium through which all capital flows in modern economies, right? So our savings becomes the base on which banks lend money. There is a debate whether that is what the banks lend. I would say that that is the base on which banks create money to lend it up, right? But let that aside, anyone who controls the finances in the banking system has an advantage over anyone else. Like let's think of a company which has, you know, there's a tender route to build a four-way highway, right? Four-lane or a six-lane highway between let's say a 10-15 kilometer stretch, right? Now these are not things that a company has resources to build. So they'll have to take a loan. So let's say there's a tender route and four companies are competing with each other and one of them owns a bank, right? They know that they'll get an easy and cheap loan at maybe 6% to build this along-term loan at 6%. Their cost of financing, their cost of interest cost is lower than the remaining three companies. So when they file the tender, they can actually say that our costs are lower and win the contract. So we know what competitive advantage anyone who controls credit has in their economy. And we know that despite the fact that there are, you know, big corporates and big industrialists cannot own banks, right? I mean, despite that they get loans on priority. A farmer doesn't, right? A farmer can't repay a one-crore loan. Their house is taken away. Their tractor is taken away. They're threatened and you can't pay back a 2,000-crore loan. You live in Kensington in London. So that's the great difference. So we know despite all this, there is nothing that RBI or any regulatory system has been able to stop when it comes to cronies being given money, easy loans, right? And this exploded from 2011 to 2014 was a huge period. And there was big talk about this being stopped by and we know that this is actually increased in the Modi period. It's not reduced. The number of what is called bad loans, money which is not likely to come back, right? That has increased dramatically. Who has that money? These big corporates have it. Now you're saying these same people should be allowed to control public funds, public savings. I mean, it is ridiculous given that till now, the RBI is trying to take money out of these people. Exactly. Right. So in this context, what we are basically seeing also, I mean, what here is the logic, do you think? It's in the sense of like you pointed out, this is such a fundamental contradiction here on the one hand. We have, you know, all this human cry. And this is of course a campaign issue. The amount of political capital, the BJP for instance made out of this was immense. And on the other hand, we have the policy direction, which goes exactly in the opposite way. So the logic, if there is any, hasn't been given in the report, right? So they've been pretty, what should I say, stingy with logic. They've kept it to themselves, the committee. Because all they're saying is that internationally, you know, industrial houses are allowed to run banks. There's no reason it shouldn't happen in India. These people who have big companies have the experience to run things efficiently. They should be allowed. They're so experienced that they've not been able to return 10 lakh crores or more than that. Right. To the banks that had taken loans from, but they can run new banks. What is ridiculous? And seriously, you know, anyone who reads the report would be surprised. Is that the report itself says that the experts, they consulted, except for one, everyone said that big corporate shouldn't be allowed to run banks. Exactly. Right. Each of the experts except one, right, said that big corporate shouldn't be allowed. Because India's corporate, Indian corporates, you know, if you look at Indian companies, corporate governance is very poor. Exactly. The experience of credit being given to them and not being returned is a lot. We know that they will pass it on to related parties, which means that their cronies, friends, and their own front companies, they'll give these loans. That's the danger. There's a danger if their businesses, if their businesses fail, then that contagion will infect the bank itself. Right. So all these objections have been raised and these are familiar objections have been raised to this RBI committee. And the RBI committee completely knows it and says that they should be allowed to... All it says is that the laws should be changed so that there can be more oversight, so that related party transactions cannot take place. Related party means that you can't give it to a company that you own or relative or whatever, that you can't give it on easier terms. Now, how difficult is it for four big corporates to own banks and lend to each other? Can you stop that? Exactly. If you have no industrial house, which owns a bank will ever get a loan? You can't. So it is... And it's an obvious thing sitting out there that this is what big industries want banks for. Right. And there's another thing in there in the report, which is significant. So here is one part, Prashant, where public money, public resources is being essentially collected and handed over to the private sector. And we know that there is a word for that when you take public money and give it to the private, to the richest. Any public resource, anything that is owned by the public, when you give it to the richest few in the country, do you know what that word is? It's a famous English word. The word is economic... No, it's called economic reforms. Right. That's what it is called. I was a bit wise. Right. So when you have to give it to the rich, what you call it, you call it economic reforms. Because as soon as you call it reforms, we have 35 years of media bombardment saying reforms are fantastic. It's going to lead to growth. The poor will become rich. 35 years of the poor becoming poorer makes no difference to people. So the way to spin it is always to call it reform. You look at any newspaper headline, it says watershed reform in banking sector. Right. Massive reform in banking sector. What is this reform? This reform is essentially going back to the pre-1969 era where banks used to fail, where cronies used to keep all the money. But a few big companies controlled all finance in this country through the banking system. That is what is being called reform. So literally, in my mind, that is the first part that you're essentially handing over public savings and the ability to create, generate money because a loan essentially generates new cash to a few companies. You're saying governments can't do it. RBI can't do it. Let the companies do whatever they want. The second part of this process, of course Prashant, is to, you know, currently in RBI's guidelines say that a promoter cannot hold more than 15%. I think then exception has been made in the case of Kotick-Mahindra Bank where Kotick I think holds 26%. I might be wrong, but I think he's been given more time or an exception RBI has made. This committee says that that should be the norm for all private sector banks. Why is the 15% rule there so that control, even if a private promoter promotes a bank, they should not have massive control over it. Public control over the board. So the maximum they can have is one out of seven board seats, right? And maybe a, of course, control over management, right? But 26% means one out of four. Your control increases significantly, right? Public control reduces. The report itself says that in Canada, I think beyond a threshold, the entire bank becomes a public holding company. So I'm saying that these are inbuilt issues. The RBI's committee not only goes against what its expert says and says that private sector, big corporates, big industries should be allowed to promote new banks, but also said they should be allowed to hold 26%, not 15%. So not only do you give them control over the four of capital, you now give them bigger control over the bank itself, right? So essentially you're promoting monopolies. This is now becoming a country where every public policy is aimed at promoting a few monopolies. That is all it has become. Right. And it's really ironic because we've seen a lot of private banks in the recent past failing. And across the world, we see this, you know, this outrage that has developed against big banks, I mean. Yes, absolutely. It's not even a particularly leftist thing. Even in the right, big banks are just becoming an issue so publicly. We saw the 2008 crisis, of course, but even now, the kind of policies that these banks are creating, the amount of debt they're generating, it's become a sole point for people across the world. And in India, we're actually reversing the kind of policies which maybe prevented these more big banks from emerging. I think everyone in India, the India's capitalist class knows that there is nothing to be gained from making things of creating services, right? There's no demand in this country. There are just a few people who have money and they have now reached their saturation, threshold. Also, they're not interested in buying Indian stuff, right? So if I have a lot of money, I don't want to buy an Indian TV. I don't want to buy Indian-made car. I don't want to buy anything that is Indian, right? So there is no way for you to actually expand that market. The only thing you can do is move into finance and that is why all these people who have reached the threshold of their growth have started contracting their businesses. This is interesting because Prashant, you know, this particular, the last quarter, which is the September quarter, right? Most of it was under partial lockdown, only a little bit had opened. India's manufacturing sector, right? India's listed companies, 4,000-odd companies which have been worked out by Mahesh Vyas of CMI. They've had their record profit It is the highest profit they've ever had since quarterly results have been a norm in India. The highest they've ever had in the middle of lockdown. Was it because they sold more? No, the sales are down. They've simply cut costs. They've simply reduced the number of people they hire, reduced the amount of things they use. They've tightened their belts by reducing employment all over. So the share of profit has gone up sharply. The share of wages has gone down. We know, again, CMI's data shows us that employment might have recovered, but income has still gone down below the April levels. So average incomes have gone down sharply. Wages and salaries have gone down sharply. That is going to have a multiplier effect on the amount of money you can buy. So what do you do? The best way for India's richest, the owners of capital, to continue to make money is either to get government contracts in the future. And I think there are only a few companies which are going to end up getting that. Two or three, you know, AA companies. Anything which starts with an AA will get it. And then go into finance. Move into finance. Finance is the best place to be, right? Because finance has its own life. Because in the stock markets, if a company sacks 15% of its people, its valuation goes up. It doesn't go down. So that's how it is. Money is flowing. So money is out there. It is going to go somewhere. It's going into the markets. It's going into the banking system. It's going to bond trading, trading of futures, you know, commodities and stuff like that. That is going to continue. That is one of the key reasons India's capitalist caste wants control over finance. That is why you'd see every time we hear not only a bank privatization, but also private big corporate being allowed to get into banking. This is what is happening. And in a very blatant manner. So just continuing the trend of policy where this is probably the most pro-corporate friendly government that India has ever seen. It's ever seen for that matter. I mean, I think that that is probably, you know, being too broad. It is the most big business friendly, the most monopoly friendly, the most oligopoly friendly government that we've seen ever. It doesn't care about corporates. It doesn't care about the 4,000 companies. It cares about 40 companies, maybe four companies, right? It is a government which believes that only two or three companies. Maybe it is, I don't know, maybe somewhere in the head, they're thinking about the Japanese Zhaibatsu or the Korean Chai Ball. Maybe they want to build that kind of thing. I don't know whether that is the model, because that's not public to us, because the rhetoric is, you know, equality and access to everyone. So that's the rhetoric. So on the one hand, we see four or five big people controlling all public resources and dole being given to those who will vote, the bottom 30%, who are out of the economic system have always been. So those who are in this 70% are getting increasingly squeezed. And I don't know how long that can continue. Absolutely. Thank you so much for talking to us. Thanks a lot. That's all we have time for today. We'll be back on Monday with more news from the country and the world. Until then, keep watching NewsClick.