 Hello and welcome to NewsClick. We are again with you today with Mr. Thomas Franco of IBOC to discuss the PNB issue. Lot has been said about the PNB issue in the news channels and the newspapers regarding how the fraud has been taken, the whole details of the fraud, the people that are involved in the fraud. But what nobody is discussing is the actual crisis in the banking sector whereas the fraud has the total worth of the fraud was 11,000 crores. Today banking sector is saddled with nearly 10 lakh crores of non-performing sector. Mr. Franco, so what is the real crisis in the banking sector today? Is it the fraud or is it something else? Well, first of all I would like to just clarify one thing in continuation to what I told last time. I was mentioning that it is only a notional loss which is not exactly correct. Let me explain once again the system which has failed. It is the Reserve Bank of India which created this instrument called LOU, Letter of Undertaking, which was not necessary, which is not being used in other countries. In our country we already have a scheme called bias credit. When an importer wants to import something, he can come to the bank, provide some security and get a credit which is called the bias credit. Here the Reserve Bank itself came with this scheme called LOU in which the borrower is helped to take loans abroad from our own banks which are based abroad. The foreign banks are not honoring these LOUs. So, the problem starts from the Reserve Bank itself. Why at all they wanted to help these importers to get a cheaper credit abroad? Instead of they get the credit within the country and they pay the taxes, the banks will improve and the tax will be more. So, the scheme itself has been a problem. It is the role of Reserve Bank of India and the government to supervise the banks and also create systems for checks and balances. This I feel that both the government as well as the Reserve Bank have miserably failed, probably because they are concentrating more on unwanted things which are not helping the economy like the demonetization. They are still counting the money they are saying for more than a year and they forgot about how to supervise the banks. So, this is one major problem which has to be addressed. Number two, this scam is being blown out of proportion. Okay, 11400 crores is a big sum, but in a big banking industry where lakhs of crores of money is being transacted, where the NPA itself is 10 lakh crores. This is being blown out of the proportion and they are trying to show that they are more transparent and every day they are leaking out information, new more and more new information are being leaked out and banks have been asked to transfer people who have completed three years. Well, that is a norm which banks have been practicing. They will be doing their regular transfer after the March annual closing. April is the time for transfer. Why suddenly the CVC should jump in and say that immediately transfer people who have completed three years? These are all over reaction. Now, coming to the question of the problem, the crisis which is approaching or has already approached the banking sector is the non-performing asset crisis. Here, I would like to explain that the NPA norms were created by Reserve Bank of India. Earlier we had 360 days now, then it was reduced to 180, then it was made to 90. Now, any account which is not paying the interest for 30 days, that is also considered as a non-performing asset. Here, one important point is that Indian banking is different from the foreign banks. In US for example, lot of the credits will be used based on this credit cards and rating and there may not be any security for fallback. Whereas, in the Indian banking system, most of our advances loans are linked to collateral securities offered by the companies. So, there is a provision for taking back those securities and realizing some of the amount. So, in the Indian banking system, the securities are available, collaterals are available. So, just because somebody is not servicing the interest, immediately declaring it is an NPA itself has to be re-looked. And here, because of the change in norms, only new NPAs have been mounting. Now, if you look back, the corporate debts restructuring called the CDR was introduced only by the Reserve Bank of India, which banks have been following. Then, they brought in the SDR, where the banks have been asked to take the shares of the company to which they have advanced as securities. Those securities may not have a value if the company goes down the drain like it happened with the case of Kingfisher, but the banks have followed that. Then, we had the S4, again asset quality review, AQR was brought in and the RBI also started footing people on what you call the PCA, prompt corrective action for banks. All this has not helped in any way to improve the banking sector. It has not helped to recover the NPAs and now with the IBC and the NCLT, more loans are being written off instead of recovery. So, this is the real crisis. Sir, from what you said, it is the government and RBI which have changed the norms of credit delivery from the banks, so that banks are able to give loans on the letter of undertaking like in the case of Nira Modi or with the backing of shares as in the case of Malia. So, is it the case of a deliberate sabotage of public sector banks where RBI has deliberately relaxed norms where these big borrowers can take and just default on loans and now government is saying or in fact, those the same people, the same group of people who take the loans and have defaulted on them like the group of Fiki or S.O.Cham, they are saying public sector banks are inefficient, now they should be privatized and government is also saying the same thing. So, do you see any broader strategy in this whole the way things are panning out? Yes, this government and even the previous government also had been pro privatization and they have been following policies towards privatization. They have not been able to succeed in the last 25, 26 years after the Narasimha Committee was introduced in 1991. They have been talking about privatization which we have been opposing and by and large people were opposing and they could not move forward. Now, they are planning I think for a strategy to easily hand over the public sector banks to private sector which has huge deposits, huge assets which these people are looking for. Here, once again as I said earlier, the Reserve Bank and the Finance Ministry, they have been changing the norms to suit the corporates and not the banks and if you see the skewed growth in advances. Now, 38 percent of our total advances as on March 2016 is given to just 11,643 borrowers whose credit limit is more than 100 crores whereas, the small borrowers are not getting adequate credit. That is a big problem. Today, the country is suffering there is no employment growth mainly because the rural economy is not growing, agriculture is not getting credit, farmers are not getting adequate credit, cottage industries, small industries are not getting adequate credit. So, there is a need for reorienting the policies and it is because of this change in policies, this situation has come. Now, another data if you look at just 12 accounts referred to NCLT, the outstanding is 250,000 crores NPA, just 12 accounts and another data of again RBI says that 84 percent of the total NPA belongs to only corporates. So, instead of attacking that aspect of recovering the dues from the corporates, now you are trying to hand over the banks to the corporates itself and what a funny request or demand the Ashotcham and Fikki are making. If at all they are caring about the economy, caring for the country, they should tell their members probably Nirav Modi and Chokshi all of them will be members of their organization also, they should tell these fellows to repay the loans. Instead of that, they are making a demand that you privatize the public sector banks. In what way it is going to help? We have historically seen before 1969, number of private sector banks collapsed, there was no credit available for the agriculture, the total outstanding credit before 1969 to agriculture was 0.02 percent of the total advances in the banking sector, that is why nationalization was brought in. Even after 1969, we have seen 36 banks collapsing, private banks and in most of the cases, it is the public sector banks which went to rescue them. The famous case is that of the global trust bank, Ramesh Delhi was the chairman and managing director and this global trust bank was given award for best banking in the country and he was named as the best banker award was given to him and just within two years, the bank collapsed and it was Oriental Bank of Commerce which was directed by the government and RBI to take over, they took over and they revived and OBC has survived, global trust did not. So, what is the meaning in asking for privatization? I do not understand, private sector is for profit and they are not going to do service for the nation, they are not going to do service for the priority sector. So, it is high time the government and the RBI, the policy makers and people like the chief economic advisor, they should retrospect and see what they have done. So, clearly as you said, governments and RBI's own policy have brought this whole crisis that the banking sector is in today, especially the public sector banks and privatization as you said can not be, can not really be the option because in 2008, it is the private sector banks which have actually precipitated the whole financial crisis of 2008. So, what is the option, what is the option out of this crisis? Is there a need for reorientation of the way banking sector functions today in India? Definitely, see we have already come out with a book written by Dr. Siphi Chandrasekhar and Dr. J.D. Kosh in which we have given the alternatives. The book itself is titled Indian Banking, Current Challenges and Alternatives for Future, where we have listed out what is to be done. First, strengthen the public sector banks, why you will have to follow the Basel 3 norms. Indian banks are guaranteed by the government, there is a sovereign guarantee. So, the entire norms have to be re-looked. Number two, the asset classification norms itself has to be reviewed. Number three, the development financial institutions have to be whatever is existing, they should be strengthened and there is a need for more development financial institutions, which that is what the other countries are following. Number four, you have to tell banks what is to be done and what is not to be done. Now, it is because of this banks being authorized to do so many other things or in some ways forced to do so many things, we say that we also do banking. Why I say we also do banking is one, we have been asked to link Aadhaar. Now, we have been asked to do enrollment of Aadhaar. We have been asked to sell all the pension yojanas of the government. We have been asked to do mudra loans. I am not against giving loans to the small industries and SME, but that we were already doing. Now, you are putting pressure on the banks and you are trying to politicize the lending. The ministers are coming and conducting loan mallours and threatening the bankers, that if you do not give, then we will take action against you. That is not a solution. Number four, the banking sector which is being now forced to do cross selling. See, there were already insurance agencies doing insurance. Banking sector was doing banking. Now, banks were allowed to get into insurance also. So, in the name of cross selling, quite a lot of miss selling is taking place and then incentive is being provided to people from lower level to the top, which has become a kind of a corruption because of which the customers are forced to take policies. Let it be general insurance or the life insurance policies which is being forced on them, which is again affected the regular banking supervision. Bank should be allowed to take care of the deposits and to lend money so that the economy grows. Instead of that, you keep asking them to do all kind of other jobs and that has affected the real supervision in the banking sector. The audit in the banking sector has been affected. So, there is alternative available. There was alternative available even before 1990, but this then government on power, they wanted to go for the IMF and World Bank loan and started changing the policies which has led to this crisis. So, it is high time. We have a relook on the policies which have been implemented. I would demand that the parliament should have an explosive session or devote, say, one week to 10 days to discuss what is to be done for the banking sector, what is the root cause of the crisis, how it can be rectified and they should take into account our views also. We are stakeholders, the associations, unions, the depositors. They should be also asked to give their opinion based on which they should come out with a new policy instead of following the same old policy which has failed again and again. I hope government is listening to you, Mr. Franco and I hope RBI and government heed to the words of employees and the officers of the public sector banks. Thank you very much for the, for NewsClick, for continuously taking up this issue. And through you, I also appeal to the public at large, customers, that please support our cause. Thank you for watching NewsClick. Please keep watching us at NewsClick.in.