Why are PSU banks fining A/C holders over minimum balance, but going soft on corporate defaulters?
The distressingly stark contrast in which the biggest public sector bank as well as the largest lender in the country treats its customers from economically weaker sections, when compared to its serial overlooking of the staggering pile of bad loan incurred by wilful defaults by big corporates, becomes once again quite clear with the emergence of a fresh report.
A perusal of the State Bank of India's 2017 balance sheet, reported by The Indian Express today, says that the SBI collected about Rs 1,771 crore as charges from below minimum balance accounts between April to November of 2017.
The amount collected by the SBI - Rs 1,771 crore - is more than the bank's Q2 net profit (from July - September 2017) at Rs 1,581 crore, and nearly half of the net profit in the half year, from April to September of 2017, at Rs 3,586 crore. This is interesting because the SBI, along with a few other PSU banks, reintroduced the charge in case the minimum monthly average balance (MAB) is not maintained, a practice followed by many private sector banks, from April 1, 2017, or the first day of the first quarter of the fiscal year 2017-18.
While the SBI had aimed for Rs 2,000 crore as penalty collection, at Rs 1,771 crore, it's not completely off target. But the compulsions that bank officials, including SBI managing director Rajnish Kumar, offer as explanation for resuming the charge on flouting the minimum balance, have much to do with the economic and technological priorities of the current government that has made banking such a headache.
Amassing peoples' hard-earned savings to loan to mega corporations who default. Nearly ₹3 lakh cr written off of their bad loans in past 3 years. The poor subsidise this open loot. #Cronyism pic.twitter.com/9nXD7l2xrM
— Sitaram Yechury (@SitaramYechury) January 2, 2018
Why charge over minimum balance?
It must be noted that the SBI did not collect any money from levy of charges in the 2016-17 financial year, or the four years gone before. The PSU bank had relaxed its norm in order to lure in new customers from rapidly changing rural-urban demography, and also to appear customer-friendly, along with being the biggest lender of both small and large loans.
In fact, the charges have been reintroduced after a gap of five years, and not just the SBI, the largest PSU bank, but also Punjab National Bank, Central Bank of India, Canara Bank, IDBI and a few other PSU banks, have adopted the policy of fining the savings accounts that don't maintain a minimum monthly average balance (MAB). The MAB levels include Rs 5,000 in cities, Rs 3,000 in urbal areas, Rs 2,000 in semi-urban areas and Rs 1,000 in rural swathes.
For the cities, the failure to meet the Rs 5,000 MAB attracted Rs 50 charge for 50 per cent deficit, Rs 75 for shortfall not exceeding 75 per cent, while Rs 100 for deficit in MAB beyond 75 per cent. The charges vary for urban, semi-urban and rural regions, according to the MAB levels.
The SBI has a total of 42 crore savings bank accounts, and of them 13 crore are basic savings bank deposits accounts and the zero-balance Pradhan Mantri Jan Dhan Yojana accounts, which were exempt from being fined on the issue of flouting minimum balance norms. But the rest, 29 crore savings accounts, were subjected to charges in case the MAB wasn't maintained. Along with SBI, which had the highest share of penalty collected, PNB recorded about Rs 97.34 crore collected through the levy of such charges, while the Central Bank of India mopped up Rs 68.67 crore in the same period, that is April to November 2017.
Penalty to bankroll Aadhaar linkage?
It is also important to note that the reintroduction of the MAB breach charges coincided with the push from the Narendra Modi government to link Aadhaar to bank accounts, the previous deadline for which was December 31, 2017. Because the linking of Aadhaar - despite being a voluntary proof of identity - with the bank account also meant immense burden on the banks to complete the procedure, which included updating the massive IT backend, calling the customers to match and update the KYC (know your customer) details, and the frequent reminders through SMSes, emails and advertisements, emphasizing the diktat from a questionable DoT (department of telecom) circular, the banks, particularly the SBI, came clear in September 2017 that raising the money through the penalties imposed was part of the solution foreseen.
The MAB charge was part of the Rs 2,000 crore needed to see through the technologically challenging Aadhaar linkage, as Rajnish Kumar stated. The "very costly affair" was becoming a burden for the PSU lenders, which are anyway bogged down by the enormous bad loan crisis, and MAB penalty, along with raising bank transaction charges after the first few free ones, among others, were introduced to partly take care of the expenses in the banking sector.
SBI profits marred by NPAs
In August 2017, data on the SBI posting a three-fold jump in its Q1 profit (April-June, 2017), came through, which was received enthusiastically by observers. But it was also noted that during the same period, the share of NPAs (non-performing assets) has gone up tremendously, spoiling the party, as it were. While the SBI reported a profit of Rs 3,031 crore for the June quarter, its gross NPAs rose to 9.97 per cent of gross advances in the same time, compared to 6.9 per cent in the March quarter.
In absolute terms, the SBI's gross NPAs, or bad loan, stood at Rs 1.88 lakh crore in the June quarter, compared to Rs 1.12 lakh crore in the March quarter. The bank made fresh slippages worth Rs 26,249 crore during the quarter, while the recoveries only stood at Rs 4,646 crore. When compared to the strict adherence to newly imposed regulations on maintaining the minimum account balance per month in ordinary savings accounts belonging to the lower and the middle classes, the helplessness of the SBI while dealing with the bad loan culprits, mostly corporate behemoths with history of serial and wilful defaults, becomes a questionable attribute.
Corporate debt versus ordinary savings accounts
In December 2017, a shocking report, that's actually part of a larger pattern, emerged when it came to fore that the PSU banks had written off Rs 55,356 crore worth corporate debt in a matter of just six months. While "crony capitalism'' was decried in the conscientious sections of the mainstream and social media, it was justified as a harmless "financial jugglery" by the government.
Not only was this a 54 per cent jump in bad loan write-offs from the same quarter of the previous fiscal, at the going rate, the total loan write-off was estimated to exceed Rs 1 lakh crore in just one year, and crossing Rs 3.6 lakh crore in 10 years, of which the total write-offs in the last year and half, under the Modi government, had been Rs 1,32,659 crore.
Please remember this figure when hear outcry against farm loan waiver.Total write-offs in the last year and half: Rs 1,32,659 crore. https://t.co/Yw7aeCWJ6A via @IndianExpress
— Yogendra Yadav (@_YogendraYadav) December 4, 2017
Please remember this figure when hear outcry against farm loan waiver.Total write-offs in the last year and half: Rs 1,32,659 crore. https://t.co/Yw7aeCWJ6A via @IndianExpress
— Yogendra Yadav (@_YogendraYadav) December 4, 2017
It's obvious that the PSU banks, and indeed the government, which is the biggest promoter of the public sector banks, display a vastly different standard when dealing with the ordinary citizen-customer, with a few thousands in the savings account, hard-earned till the last paisa. Yet the lakhs of crores in loan defaults by big corporates are explained away as fiscal prudence, bailout, creating optimum market conditions, among other lame excuses. That the MAB penalty is also about bankrolling Aadhaar linkage, a project of uncertain future full of loopholes and awaiting a verdict in the Supreme Court, is telling. Fining the aam aadmi to cater to the whims of the government and its cronies is really shameful, and exploitative, to say the least.