Banks being handed over to International Financial Mafia

From this issue we begin a new regular column entitled The Great Indian Sell-out; Traitorous policies of the Indian rulers This will attempt to focus the reader’s attention as to how the governments/parties at the Centre and the States and their various financial and other wings, are actively selling out the interests, wealth and assets of the country to the imperialists, particularly the US. From now on every issue of the magazine will carry some latest example of such sell-outs taking place under the banner of ‘globalisation’, ‘economic reforms’, ‘liberalisation’, ‘privatisation’, etc. These policies are not merely a question of infringing on the integrity and sovereignty of the country (or what nominal amount remains of it) but of its disastrous impact on the lives of the people. While the rulers seek to arouse national sentiment (country in danger, by invoking hysteria against Pakistan, Muslims, so-called terrorists, etc. etc), it is in fact they who are these rulers and their hangers-on who are the biggest traitors that are actively selling out every aspect of the country’s wealth to the sharks of international finance capital. As these policies come under the cover of financial and economic policies, it is not understood by the common man. In these columns we shall attempt to interpret the steps being taken, so that all can understand its disastrous implications on the people’s lives and for the sovereignty of the country. We appeal to all readers to send your comments and write in other examples of how the country is being sold by the agents of the imperialists that don and ‘Indian’ garb.

Already large sections of the financial sector have been taken over by TNCs and foreign capital through policy changes of earlier governments. With the opening out of the insurance sector to 26% foreign capital (and a proposal to increase this to 49%) and the government’s decision to reduce its equity in public sector banks to 33% together with allowing 20% foreign equity into PSU banks, much of India’s money wealth has already been handed over to the foreign powers. Now the new Congress government, with the Finance Minister in the lead, has been taking steps to completely hand over the entire banking sector, both public and private, to the foreign sharks waiting in the wings.

Some time in January the Finance Minister called the Chairmen of the public sector banks and told them that they must immediately act to merge their banks and reduce the number of public sector banks to just four. Also they were told to write off their NPAs (Non-performing Assets; or money loaned to big business and not paid back) fast. The entire purpose was to make the banks viable for foreign take-over.

The FM, acting as an agent of the powerful foreign bankers, has been pushing through changes in the banking system at break-neck speed, that facilitates this take-over and allows these banks to maximize their profits (which has anyhow been sky-rocketing over these years). With profits maximized, bad loans written off and banks merged to become fat prize catches — the FM has been continuously diluting the restrictions on foreign capital into banking in order that they may be easily taken over by foreign banks.

For profit maximization the first task lay in reducing staff. Already about 12% of the staff (over one lakh) were removed a few years back through a VRS (voluntary retirement scheme). Since then, as people retire, their posts are not filled with new recruitment. More staff is sought to be reduced. Then, in order to help banks make fat profits the necessity to give concessional loans to the primary sector have been removed. Now the RBI has approved proposals of the government to amend the Banking Regulation Act to permit the banks to trade in commodities and derivatives (a form of speculative investments which give huge profits). The government has diluted or dismantled all regulatory measures as with priority lending, as well as restrictions on banking activities in India. With this banking credit has shifted from commodity production to consumer consumption affecting investment and growth of the economy. Personal credit for items like housing, cars, etc have jumped from Rs.50,000 crores in 2000 to Rs.1,60,000 crores in 2003.

Besides these, institutional changes have been introduced, which include: rapid increase in new private sector banks, bank mergers, and the creation of universal banks that are in the nature of bank supermarkets, offering the customer a range of products like debt products, investment services, debt an commodity markets and insurance of different kinds. The earlier nationalized banks that, to some extent, were made to focus on priority lending and investments that help build the economy, have been completely overhauled over the past few years, making them lucrative profit-making machines, ripe for foreign take-over. Besides, in May 2005 the RBI has ordered that 100 loss-making urban cooperative banks to either surrender their banking license, or merge with a healthier bank or face liquidation.

And to reduce the huge Rs.15 lakh crore NPAs with the PSU banks a massive Rs.11,074 crores was written off in 2003-04 alone. Such amounts are being written off each year. While the small fry is being forced to pay back the loans the big fish is being let off. Some of the big fish include Malvika Steel, Maharashtra Rs.1,227 crores; Modern Syntex, Maharashtra, Rs.867 crores; Lloyds Steel India, Maharashtra Rs.595 crores; Prakash Industries, Hissar Rs.725 crores, Usha Ispat, UP Rs.555 crores.

With the grounds already laid for the maximization of profits the present FM is pushing through changes which allow for the speedy take-over of Indian banks by the foreign TNCs.

Just after the budget the government changed the ruling that foreign investments in private banks could not exceed 49%. It was increased to 74%. Any company is made up of its share capital, control of which amounts to control of the company. Generally with 26% in the hands of one person/company that can be sufficient to dictate terms to the company. With a 26% holding the person has the right to have their people on the board of directors, who run the company. As it is 49% amounts to control and 74% will entail total domination.

Not only this, a few weeks earlier, the FM declared that the government was open to the process of creeping acquisitions in which foreign banks acquire 10% stake every year in Indian private banks. Even in the most pro-west countries of East Asia foreign bank’s holdings in local banks is very restricted. But the lackeys of India have far surpassed even these agents of the East. In South Korea foreign capital in banks is limited to 39%, in Malaysia to 19% and in Philippines and Thailand it is a mere 15%. From this one can understand the extent of servility of the Indian rulers to the imperialists.

So, not surprisingly the leading ‘Indian’ private banks are already in reality foreign banks. Foreign capital in ICICI Bank is already 74% even before the regulation came in. The table will give a picture of the extent of foreign control over India’s private banks.

This shows the extent to which the foreign penetration has taken place. And this is continuing at a very fast place. De facto already the first top six mentioned above are in foreign control. It is a matter of time before the others are also taken over. For example in March 2005, in a block deal Deutsche Securities (Mauritius), an FII of the Deutsch Bank Group of Germany, acquired another 4.1% equity stake in HDFC Bank for Rs.714 crores. This alone takes foreign investment in HDFC Bank to 52%.

In the public sector banks the take-over is taking place too, though at a slower pace. The government has recently planned here to increase the limit on foreign investments in these banks from the existing 20% to 24% as many have neared the 20% limit. Till now the foreign holdings in these banks are: State Bank of India 19.4%; Bank of Baroda 19.6%; Punjab National Bank 18.7%; Corporation Bank 16%; and Oriental bank of Commerce 16.5%. Besides, the government has been systematically disinvesting its share in these banks, paving the way for foreign take-over. For example, just in the last year the government has reduced its share in IFCI from 60% to 42% this year. 12% has been taken over by the big business houses.

And now in May this year the government brought through a major ‘reform’ that allows foreign control over private banks. As of now the voting rights of foreign investors, irrespective of their equity (share capital) ownership in private banks, were limited to 10%. This prevented them from exercising veto rights even if their equity went beyond 26%. Now they will have a say in the polices of the bank as per the percentage of capital they own. In other words the restriction that prevented decision-making is now removed and with this one change the foreigners now take open control of the first six banks mentioned in the above list.

Beside this the foreign banks have been given full freedom to extend their own network over the country. They have been expanding at a frantic pace. For example the British Bank, HSBC, has bought a 15% stake in UTI Bank (for Rs.306 crores) to make it the biggest foreign bank in India.

At the pace at which the changes are being introduced it will not be long before the entire money resources of the country will be in foreign hands. This will have serious implications on the sovereignty of the country and its future. All the profits generated will be sucked out and not used for re-investment here thereby retarding growth and development. Concessional interest rates will be totally stopped and this will have serious implications on small and middle farmers and also small business. Other facilities like concessional scholarship loans etc will also disappear. The banks will become rapacious robber-barons destroying all in its path to earn that extra dollar.