THE STATE BANK OF INDIA (AMENDMENT) BILL, 2010 (Excerpts from the speech made by Comrade Tapan Sen in Rajya Sabha on 12.08.2010)

I rise to oppose this Bill in its present form and I have also moved amendments in that direction. I oppose the present Bill in its present form because it has provided for an enabling provision to dilute the Government stake in the State Bank to 51 per cent, almost at the threshold of privatisation. Presently, it was holding 59.4 per cent. So, it is a case of more than 8 per cent dilution of Government equity. For that, an enabling provision has been created. I don't know whether they will be doing it tomorrow or day-after-tomorrow, but an enabling provision has been created and we oppose this Bill for that reason.

My apprehension on this privatisation has been further strengthened when in the Budget speech, the hon. Finance Minister proposed for a much bigger presence of private sector in the banking field and issuing more licences to the banks in order to expectedly promote competition and improve banking service. But so far as the role of the private sector banks in the present market scenario is concerned, I would say that there is competition in the metropolitan cities and they are eating away the profit or margin of our public sector banks; but in rural areas, there is nobody to compete. My apprehension has been further strengthened by a discussion paper that has been released by the Reserve Bank of India which says that 'in order to promote private participation in the banking system now RRBs, Regional Rural Banks, are being proposed to be taken over by the industrial houses to ensure a bigger participation and bigger coverage of banking service to the rural areas." I don't know how it is tenable and how the RRBs which are playing an important role in rural credit will be operated. In today's paper, it has come that if they are allowed to be taken over by the industrial houses what will be the whole shape of the rural credit system which is already suffering from a big crisis despite all efforts being stated by made by the Government in their policy declaration. Sir, there are other aspects in the Bill. According to Basel II norms, they wanted to improve upon the practices, and, accordingly, some structural rearrangement has been done. I have not much objection to that. But there is only one point that needs to be put now. When you are talking about improvement of the banking services and when you look at those improvement aspects through the eyes of Basel norms, I think, it is time to reconsider that those who have proposed the Basel norms mostly belong to the western dominated international banking community.

And through that, Government's participation in the private banks' capital has increased. They are prescribing improved banking practices for the Indian banks. The Indian banking system has proved its mettle during the last global financial crisis. It has insulated itself from the crisis, and also contributed to insulation of our national economy to a great extent from the global financial meltdown. That was possible only because our public sector banking system played a very important role in not going in for the kind of innovation, as it is called in banking parlance, of gambling with public money on toxic assets. That was the basic reason for the global meltdown.

As far as the performance of the State Bank of India is concerned, it was a stellar performance. I would like to say that although the Statement of Objects and Reasons of the Bill argues that there is a need to enhance the capital of SBI in order to meet the BASEL-II Capital Adequacy norms, the present Capital Adequacy Ratio in SBI is quite comfortable at 12.64 per cent, as on 31st March, 2008, and for the SBI group as a whole, it was 12.71 per cent. By 31st March, 2010, the CAR increased to 13.39 per cent and for the whole SBI group it became 13.49 per cent. The SBI, in its report that was disclosed on 31st March, 2010 had recorded, "The CAR of the Bank and the Group as a whole is estimated to be well above the regulatory CAR of nine per cent in the medium horizon of three to five years. However, to maintain adequate capital, the Bank has ample options" --- they are comfortable -- "to augment its capital resources by raising subordinate debt and hybrid instruments besides equity as and when required".

In the quarter ended on June 2010, the SBI's profit was Rs.2935 crores. It is a jump from Rs.2330 crores when compared to the same quarter in 2009. It is making a chequered performance. I think, we should concentrate more on improving upon that and not diluting Government ownership in SBI. This diluting would push it to the threshold of privatisation. There is apprehension about this. This apprehension is further strengthened by Government's policy decision to allow greater private participation in the banking sector. I think, we must draw some lesson from the global financial meltdown, from the menace that deregulated private banking had created to the various economies. The world economy is still reeling under that, and it was precisely because we had not fallen into that trap that our country was saved from a serious disaster. I think, there is no difference of opinion among us about the basic reason the country could insulate itself from the global financial meltdown. That requires total Government control on the financial system, less deregulation but more cautious and calibrated regulatory move, keeping national interest at the fore. Keeping that in view, I would request the hon. Minister and the Government to reconsider its decision of diluting Government's stake, its equity, in SBI to 51 per cent, which is the threshold of privatisation. He may say that there is no privatisation, but if an enabling system is created, it would pave the way for such a danger. He may also review his policy on private participation in banking in our country and review the move that has been taken. Though it is just a discussion paper, the very idea of a private industrial house taking over regional rural banks is a dangerous proposition.

Source: www.citucentre.org