THE BJP government has passed a bill in the Lok Sabha to reduce the combined share-holding of the central government and the sponsor banks in the Regional Rural Banks to 51% on December 22, 2014. This is a great disservice to the rural poor.  Earlier the UPA-2 government led by the Congress Party also made an attempt to bring this legislation.  The bill is expected to be placed in the Rajya Sabha or in combined session of the parliament during the budget session.  This is yet another blow to the rural poor.

RRBS ESTABLISHED

TO HELP RURAL POOR

Regional Rural Banks (RRBs) were established on October 2, 1975, Gandhi Jayanthi Day through an ordinance to ensure sufficient institutional credit for the agriculture sector and to relieve the rural poor from the clutches of the usurious money lenders. The major objective of setting up of RRBs is to provide credit especially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas. Later the ordinance was converted as Regional Rural Banks Act 1976.  RRBs are jointly owned by government of India, sponsor banks and the state government concerned and the issued capital of RRB is shared in the proportion of 50%, 35% and 15% respectively.   In these nearly four decades of the existence of these Banks, they have largely served the purpose for which they were established. 

Initially many RRBs were established and about a decade back there were 196 RRBs.  Later they were merged in two phases and now there are 56 RRBs sponsored by 22 banks covering 27 states and 639 districts.  The total number of branches at present is nearly 19,000 out of which nearly 18,000 are located in rural and semi urban areas.  The RRBs serve 15.5 crore people and have lent to the extent of approximately Rs 2 lakh crores to nearly 3 crore people with hardly Rs 196 crores share capital and nearly 80,000 staff.  The (credit deposit) CD ratio is 86.2%.  As has been admitted by the minister of state for finance Jayant Sinha in the Lok Sabha “their (RRBs) priority sector lending which is supposed to be 40% for a PSU Bank that is what is the RBI mandates, is 82% and their profitability has been strong”.

HARDLY 7% OF VILLAGES

HAVE A BANK BRANCH

Our country has nearly 6,32,000 villages as per 2011 census, whereas the number of rural branches of commercial banks is less than 30,000.  Even after adding 14,500 rural branches of RRBs, the number of villages with bank branches is hardly 7%.  According to Dr K C Chakravarthy, then deputy governor of RBI, “Rural branches have presently (in 2013) declined to 37% of the total number of branches from 54% in 1994”.  This clearly shows that the focus of commercial banks including PSBs has been shifted from the rural area to the urban and metro areas after the implementation of neo-liberal policies. There is a vast scope for expansion of public sector banks (PSBs) and RRBs in the rural area to implement real financial inclusion.  Instead of moving in this direction, there is a move to merge PSBs.  The top most agenda of the meeting of chairmen of the PSBs which will be attended by the prime minister Narendra Modi to be held on  January 2-3, 2015 in Pune is to merge PSBs which will eventually lead to closure of number of branches.

Even after 44 years of bank nationalisation and 38 years since RRBs were established 60 % of the adults do not have formal bank accounts as per RBI report 2013.  The same report admits that 42.9% of the rural credit is financed by non-institutional agencies like landlords, money lenders, traders, commission agents etc.

Under these circumstances, it is logically expected of the government at the centre to plan for large scale expansion of banks particularly RRBs in the rural area in order to have meaningful financial inclusion.  That alone will really relieve the rural poor from the clutches of the money lenders.   Instead of that, the Modi government is treading exactly in the opposite direction.

The RRBs amendment bill pushed through in the Lok Sabha on December 22, 2014 provides for

a)                   Enhancement of authorised share capital from Rs 5 crores to Rs 2000 crores

b)                   Reduction of the combined share-holding of the central government and the sponsor banks to 51%

c)                   Reduction of the share-holding of the state government concerned to below 15% in consultation with it (not with consent of the state government)

d)                   Nominees of private shareholders to the board of directors of RRBs according to the size of private shareholding, ranging from 1 to 3

The argument put forth by the government for this amendment bill in the words of MoS for finance is to strengthen RRBs and to deepen financial inclusion.  Another argument is that there is the need for capital as per Basel III norms.

THE EXPERIENCE OF

COMMERCIAL BANKS

After offloading of the shares of government of India in the PSBs from cent percent to upto 51% in the early 1990s, the direction of them has got changed from mass banking to class banking. The priority sector lending has taken a back seat.  The corporate lending has assumed priority.  The corporate NPAs have increased to alarming proportion. The share-holders directors in the PSBs play a vital role to serve the interest of the corporates.  There is a large scale outsourcing of many of the permanent and perennial nature of jobs.  Thus this partial privatisation is root cause for almost all the maladies that the PSBs are afflicted with.

The previous NDA government led by Vajpayee brought a bill in the year 2000 to reduce the share-holding of the government of India in PSBs to 33% paving way for virtual privitisation of the PSBs.  The protest actions of the bank employees’ movement and the Left and democratic forces only prevented this danger.

Thus with the reduction of combined share-holding of the central government and sponsor banks in RRBs to 51%, the focus of RRBs will surely be shifted from priority sector lending.  This will not strengthen RRBs.  Rather the share-holder directors would try to change the direction of the RRBs from mass banking.  The financial inclusion will remain a myth if RRBs are partially privatised.  The National Sample Survey reveals that the suicide of the farmers has enormously increased during the past year for want of institutional credit. This move of the government will add the number instead of arresting them.

SPECIOUS ARGUMENT

OF CAPITAL NEED

The argument of the government that this move is taken for augmenting capital as per Basel III norms does not hold water.  First of all, the huge credit to the crores of people is extended with just Rs 196 crores share capital.  The RRBs have mobilised a deposit of Rs 2,40,000 crores just with the same capital.  The people of the country have abundant faith in RRBs not seeing the capital but because they are owned by the government of India.    The total amount of capital support in the name of Share Capital Deposits provided to RRBs in the entire lifetime of the RRBs is around Rs 6,000 crores only. The RRBs have now an amount of Rs 15,283 crores as reserve, that means as accumulated profit.  Even assuming that there is a need for capital, the government can very well provide the same.  Instead of that, offloading of share of the central, state governments and the sponsor banks is sure to injure the interest of the common man.  This move of the government to privatise RRBs has to be stoutly opposed and resisted.  The trade unions and the democratic forces have to join hands to see that this legislation is not enacted into law.