“What really was new was the trick of claiming Neo liberalism stripped away rules when much of what it was doing was imposing new rules that favoured banks and the wealthy. For instance, the so called deregulation of the banks got government temporarily out of the way which allowed bankers to reap rewards for themselves. But, then, with the 2008 financial crisis, government took centre stage as it funded the largest bailout in history, courtesy of tax payers. Bankers profited at the expense of the rest of the society. In Dollar terms, the cost to the rest of us exceeded the banks’ gains, Neo liberalism in practice was what can be described as “ersatz capitalism” in which losses are socialized and gains privatised.
_”The Road to freedom: Economies and good society” Joseph Stiglitz.
Particularly in a developing country like India, banks were meant to not just serve their profit motive, but in fact serve as an instrument of social upliftment, economic wellbeing and equitable growth. We banked on the public sector banks to fulfill these priorities. But, after the introduction of neo liberal reforms the Indian banks reversed the goals of Nationalization which has led to a similar situation as mentioned above by Stiglitz and this can put banking in jeopardy. The question is should the people have no say in the running of banks, should the banking sector not serve the interests of the general masses? Particularly when they run on public money?
Yes, banks run on people’s money and not of their own. For example the Capital of HDFC Bank as on March 2024 was Rs. 759.69 crores whereas the deposits were Rs. 237 9786.28 crores. Loans given were Rs. 2484861.52 crores. Interest earned from these loans was Rs. 79433.61 crores, whereas the interest paid on deposits was Rs. 43691.51 crores. The difference is Rs. 35742.21 crores. The operating profit of the bank was Rs 31571.93 crores.
Without the deposits the Bank cannot make this profit because it does not have its own funds. Now if the banks are being run on our money, should we not have a right on how it runs?
The banks have reduced interest on deposits drastically after the so-called reforms that started in the 1990s and accelerated after 2014. The depositors who are the real owners are at huge loss. Sadly their “interests” are not taken care of. Please read the chapter titled “Where is my interest?” in this booklet to learn more deeply about this fraud.
If we analyze the interest paid by the borrowers one can further understand the loot. There are only 449 accounts with credit limit of Rs. 167063 crores where the interest charged is less than 5% for these loans which are above Rs. 100 crores each. There are just 85 borrowers with a credit limit of Rs. 28085 crores, who pay interest less than 6% and there are just 322 Borrowers with credit limit of Rs. 193203 crores who pay less than 7% interest. There are 2178 borrowers with credit limit of 1491878 crores who pay less than 8% interest. There are 4757 borrowers with credit limit of Rs. 2708094 crores who pay less than 9% interest and there are 3047 borrowers with credit limit of Rs. 1140439 crores who pay less than 10% interest. Who are these 10838 “poor” borrowers who pay less than 5%,6%,7%,8%,9% and less than 10% interest for loans of more than Rs. 100 crores? Definitely not farmers, not MSME borrowers, not Housing Loan borrowers, not Education Loan borrowers, not traders, Artisans or SHG Women? Because the ones who truly need credit support end up paying more than 10% interest and up to 24% and for credit cards even as high as 36%.
A whopping credit limit of Rs. 5728762 crores has been given to this 10838 Neo rich who are close to the corridors of power. Some might have got more than Rs. 1000 crore also as the average loan given to these people is more than Rs.500 crores. The reality is that under the weight of these mega loans, it is the small credit that is suffering. This is affecting the entire economy and individual depositors as well as borrowers. Learn more about this disparity and how the big fish is eating away at the loans of the small in the chapter titled “The dwindling fate of Small Credits”.
The TV and the newspapers were all talking about the NPA crisis that rocked the banking sector in 2012-13. But we don’t hear about it as much in recent years? Did it disappear? Far from it. In fact there is a 1.6 times increase in the accumulation of Gross NPA across Public sector Banks at the 2014-15 level which sums to 54 lakh crores during the two terms of this Govt. The so-called “banking miracle” has been achieved simply by striking them off from the books using the magic wands of write offs and haircuts. You can learn more about this magic in the chapter titled “Rising NPAs, Mounting Write-offs: Whose gain and at what cost?” Some may say these write-offs are simply account book exercises that don’t affect the common people. But nothing could be further from the truth. The banks have to make provisions for these write offs. They adjust for it by either downsizing, by laying off staff, or by paying less interest rates to depositors, or by cutting down on loans for farmers and MSMEs, etc.
There is a general atmosphere of disdain for the public sector and praise for the private sector banks these days which is promoted by neoliberal mentality. But these complaints are often shallow and ill-informed. If one looks at the responsibility of processing government schemes, of disbursing pensions, or providing banking service to the interior-most and rural districts and so on – one finds that to compare the public and private sector is like comparing apples and oranges. While it is the public sector banks that share the disproportionately bigger pie of these social responsibilities, they are the ones who are grossly understaffed. There has been a constant reduction of staff in the Public Sector Banks to reduce the establishment expenses instead of increasing their income by charging higher interest on large borrowers .This has led to customer complaints and deprivation of reservation policy for the youth. The employee strength in Public Banks which provide reservation is diminishing but increasing in the Private Sector. As of March 2024, there are 838927 Public Sector Bank employees and 1033290 Private Sector employees. For these 10 lakh employees no reservation policy is implemented. Please read more about this malice in the chapter titled “Why are Public Sector Banks Under-staffed and who suffers?”
Ultimately where are the majority of the population from poor to middle class pushed to? To save their little money or borrow for their daily needs, for small business, small trade, education and even to meet their expenses for burying their loved ones when dead? The Non- Banking Financial Companies, Microfinance Institutions and the Co-Lenders like Adani Capital. Even the Reserve Bank of India is heard every now and then talking about the usurious interest rates charged by these NBFCs that are nothing but modern day moneylenders, sahukars. They borrow cheap from public sector banks and lend at exorbitantly high interests and also pose a grave threat to the banking sector that is overexposed. Learn more about this concern in the chapter titled “Do Non-Banking Financial Companies (NBFCs) in India Serve Public Interest”.
But none of the problems are fait accompli. They are clearly the outcome of policy decisions made since the reforms that have prioritized the profiteering by a handful of corporates at the top instead of banking being an instrument of true financial inclusion and economic upliftment. If these are impacts of choices made, then clearly we could have different outcomes, if we are able to force our governments to make different choices pro-people instead of pro-corporate choices. Please find at the last segment a set of recommendations towards that end.
Read and Download the report here: Where is My Interest Rate? | Unlocking Banking for the People