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Impact of Globalisation on Banking Sector in India

Pradip Biswas
General Secretary,
Bank Employees Federation of India.

There are three distinct spells of development of Banking industry in post independent
India, the pre-nationalisation era from 1947 to 1969, the post-nationalisation cum pre-
liberalisation era from 1969 to 1991 and the neo-liberalisation era from 1991 onwards. The
first phase was mostly city-centric private Banking marked by frequent failures and
liquidation of Banks and consequent pauperisation of numerous poor and middle class
depositors and loss of jobs for the employees. The post-nationalisation era saw a sea-
change in the Banking scenario : financial stability of Public Sector Banks (PSBs)
controlling more than 84% of Banking business of the country, PSBs commanding trust
and confidence of the Banking-public, expansion of Branch net-work of Banks –
particularly in hitherto unbanked rural and semi-urban centres, opening up the banking
services accessible to the rural poor, expansion of credit to agriculture, small scale
industries and small entrepreneurs, artisans – even to the marginal farmers, small shop-
owners, vegetable vendors etc. Such expansion of Branch network, coupled with such
mass-banking, created considerable job opportunities on the one hand, and, on the other,
it helped a green revolution on the agricultural sector, obviating dependence of import of
foodgrains, as also a spurt in the development of Small and Medium Scale Industries. It
also rescued a vast section of the rural poor from the exploitation by village-money-lenders.
By tapping the hitherto untapped huge rural savings, the PSBs could help the growth of
large-scale and capital intensive industries too. Even the most ardent critics of Public
Sector too have had to recognise and appreciate the laudable role of PSBs towards
development of economic self reliance. During this post nationalization era, Regional Rural
Banks (RRBs) were established in 1975 onwards under the auspices of PSBs to cater to the
credit needs of rural-India. Till 1990, priority sector lending constituted over 70% of the
advance portfolio of RRBs giving further fillip to the rural economy. During the last four
decades of their productive existence, the PSBs have taken up the services of employees
and the liability of depositors of a number of Private Banks going on liquidation due to
mismanagement by and the greed of their private owners.

With the onset of World Bank-IMF dictated reforms, euphemistically called liberalisation,
successive Governments at the centre have consistently been trying to undo all the good
work of the PSBs as also to dismantle and privatise the PSBs altogether. On 14th August
1991, the Government of India (GOI) appointed a Committee headed by Mr. M.
Narashimham (called “Narashimham Committee – I”) to suggest the modus operandi for
reforms of the Banking Sector. On 16th November 1991, the said Committee submitted its
Repost suggesting downsizing of PSBs through closure of Branches, merger of PSBs,
reduction of priority sector lending from the then prevailing 40% to 10% of total advance
portfolio, abolition of Banking Service Recruitment Board, granting of more autonomy to
PSBs in respect of both financial and administrative matters, to reduce the supervisory and
regulatory control of Reserve Bank of India (RBI), the Central Bank of the country, and, to
top it all, dilution of Government Holding in PSBs through suitable amendment of relevant
legislations. Thereafter, a number of committees, such as Narashimham Committee – II,
Khan Committee, Verma Committee, S.C.Gupta Committee, Raghuram Rajan Committee,
Anwarul Hoda Committee, to name a few, have been appointed to assess the progress in
implementation of the Recommendations of the “Narashimham Committee – I” as also to
suggest measures for carrying forward the reforms of the Banking Sector further as per
dictates of the World Bank-IMF.

Following the Recommendations of these Committees, successive Governments have

persistently been trying to carry forward the reforms dictated by World Bank-IMF. In the
process, law has been amended to pave the way for reduction of Govt. holding of shares in
PSBs from 100% to 51% and, in pursuance of such amendment, most of the PSBs (except
two major PSBs and two subsidiaries of State Bank of India) have made public issue of
shares, thus, reducing Government holding. Instead of filling up more than one-hundred-
thousand vacant posts through employment, the PSBs have reduced its workforce through
Voluntary Retirement Scheme on the one hand, and, on the other outsourcing even the
regular and core banking jobs to outside agencies. The role of RBI, as the regulatory and
supervisory authority over the Banks, have been redefined and undermined considerably.
RRBs have been directed to give more emphasis on conventional Banking and,
consequently, its priority lending stands reduced to around 40% (from 70%) of total
advances today.

Still, all is not yet lost altogether, as least, so far our country, India, is concerned. Bank
employees in India have been fighting relentlessly against the machinations of the
successive Governments to the reform the Banking Sector at the dictates of the World
Bank-IMF combine. It is most encouraging that all the nine unions having all-India
presence in the Banking Industry – five Workmen’s Unions and four Officers’ Unions –
representing almost 100% of the workforce in the Industry – have joined hands to form a
United Forum of Bank Unions (UFBU). All the Unions are, in the main, united in principle,
against the reforms. Since the onset of the reforms regime in 1991, the Bank employees
have undertaken, apart from other forms of struggle-programmes, not less than 19 one-day
strike and 3 two-day strike programmes (total 25 days of strike); these strikes are apart
from the strikes undertaken jointly with other sections of Trade Union movement on
popular demands. I am very happy to report before this august house, that the left political
parties in our country have always extended their unequivocal support to all our
struggles/strikes against the World Bank-IMF dictated reforms of the financial sector; the
left-parties have also voiced their strongest opposition to such reforms both inside and out
of legislative bodies.

Because of all these strike/struggle of Bank Employees and the role played by the left
parties, the successive Governments have not been able to push through their much
cherished reforms-programme to the fullest extent they wished they could have done, to
dismantle the PSBs that they would have liked. The PSBs still retain their Nationalised
character, save and except State Bank of Sourastra ( a subsidiary of State Bank of India)
which has been merged with State Bank of India, no other PSB has so far been merged with
any other by way of reform (merger of New Bank of India with Punjab National Bank was
actuated by commercial considerations and not by way of reforms; hence no TU opposed
the said merger). The top echelons of PSBs, on their part, has not yet been able to introduce
outsourcing to the extent they would have liked. Notwithstanding all their intentions, GOI
has not yet been able to privatize the Pension Fund.

The result is there for all of us to see. Because of the presence of a strong and dominant
Public Sector, the financial sector in our country, though affected, has not crushed down
with the melt down of the financial sector in the United States and other major economies
of the capitalist world; not a single copper of public money has to be spent to dole out/save
any PSB, none of the depositors in any Bank has lost a single farthing of his/her deposit;
when the financial giants all over the world have been happily off-loading their employees in
thousands to tide over the crisis, not a single Bank-employee in India has lost his job just
to accommodate the financial health of his/her employer. Pension, the only post-
superannuation succor of employees, still remain assured.

There is, however, no room to be complacent. The present dispensation at the centre of our
country has not learnt any lesson from the prevailing convulsion in the world economy and
is still hell bent on going full steam with its reforms agenda. The recent cabinet decision to
increase the cap on FDI in insurance sector from 26% to 49%, as also to amend the law to
allow proportionate voting rights to the shareholders in Private Banks are indications of
the road-map drawn for the desired reforms. There is the added danger of their intentions
to allow proportionate voting rights to the private shareholders of PSBs by amending the
relevant law. The working class, employees in financial sector in particular, have, therefore,
to carry on the struggle unabated. The left parties of our country have always remained
with us in these struggles and they will continue to do so in future, we are confident.