Wage Revision Talks With IBA | Banking News Dated 30th October 2017

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Banking News: October 30, 2017

Wage Revision Talks With IBA | Banking News Dated 30th October 2017

Wage Revision Talks With IBA

Circular issued on October 28, 2017
by Sanjeev K. Bandlish, Convenor
United Forum of Bank Employees (UFBU)

Mumbai, October 28: Further to the ongoing discussions in the Sub-Committee on non-financial demands, today, a round of discussions with the Full Negotiating Committee of IBA was held in Mumbai.

From the side of IBA, Mr. R. K. Takkar (MD-UCO Bank and Chairman of the Negotiating Committee), Mr. V. G. Kannan (Chief Executive of IBA), Mrs. Usha Ananthasubramaniam (MD Allahabad Bank), Mr. P. S. Jayakumar (MD-Bank of Baroda), Mr. Shyam Srinivasan (MD-Federal Bank), Mr. Prashant Kumar (DMD-SBI), Mr .B. Rajkumar (Dy. Chief Executive-IBA), Mr. S. K. Kakkar (Sr. Advisor-IBA) and Mr. K. S. Chauhan (Advisor-IBA) were present.

From the side of UFBU, the following representatives were present: Com. C. H. Venkatachalam and Com. Rajen Nagar(AIBEA), Com. D. T. Franco and Com. Dilip Saha (AIBOC), Com. Sanjeev K. Bandlish and Com. Vinil Saxena (NCBE), Com. S. Nagarajan (AIBOA), Com. C. J. Nandakumar (BEFI), Com. Subhash Sawant (INBEF), Com. K. K. Nair (INBOC), Com. Ramnath Kini (NOBW) and Com. Sunil Deshpande (NOBO).

We submitted the following main issues/points and wanted the response of IBA.

v         Wage revision process should be completed expeditiously
v         More frequent meetings/discussions to be held for this purpose
v         Data regarding establishment expenses, number of employees, etc to be provided
v         Negotiations must cover all Officers upto Scale-VII
v         IBA to make their initial offer on increase in wages
v         Fixing the Price Index upto which DA is to be merged with Basic Pay
v         Discussion on the issues pertaining to retirees viz.100% DA, pension updation,
v         improvement in Family Pension, etc.
v         Introduction of 5 Day Banking i.e. remaining Saturdays also to be holidays.

IBA responded as under:

  • IBA will hold frequent meetings to expedite the process.
  • Data on Establishment Expenses as on 31.03.2017 was provided. Further data would be provided shortly.
  • On the issue of fractured mandate by some Banks, Unions have to take up with the concerned Banks.
  • For officers, Performance related Variable Pay method to be introduced.
  • DA as on 31.10.2016 can be merged with Basic Pay.
  • Issues like 100% DA and updation are subjudice due to litigation.
  • On improvement in Family Pension, the cost aspect is being worked out.
  • For introduction of 5 Day Banking, the matter needs to be taken up with various stake holders including customers and Government, etc. before any decision is taken.

There was a lot of discussion on these issues. From our side, we informed them as under:
  • IBA should commence the meaningful negotiations by making their initial offer on wage increase.
  • Entire exercise should be attempted to be completed before December, 2017.
  • While we shall meet the top management of the concerned Banks on mandate issue,
  • IBA also should also take initiative to resolve the matter as majority of the Banks have given their mandate for negotiations upto Scale-VII Officers.
  • While we are for better performance, efficiency, more productivity, etc., any differentiated wage compensation will result in subjectivity, unilateralism, discrimination and may become demotivating and counter-productive.
  • On DA merger point, Unions will discuss and come back in the next round of talks.
  • On pension related issues, none of the Unions under UFBU have resorted to litigation.
  • On introduction of 5 Day Banking, IBA should take necessary steps from now on.

IBA took note of our views and it was decided to discuss the issues further in the next round of talks which will be held shortly.

P.S: It has been decided to hold a meeting of the UFBU at Mumbai on 13.11.2017 to take stock of the developments taking place in the banking sector and to further continue our struggle programmes as well as to work out our strategies to clinch an early and satisfactory wage revision.


Banks not to levy minimum balance
penalty on pension account holders: HC

The Press Trust of India
Published on October 28, 2017

Collection of penalty would defeat the purpose
of old-age pension scheme, argued the petitioner

Madurai, October 28 (PTI): The Madras High Court on Friday restrained banks from levying penalty for not maintaining the minimum balance in the accounts in which the monthly old-age pension amount was being credited.

A Bench of Chief Justice Indira Banerjee and Justice Nisha Bhanu gave the interim order at the Madurai Bench of the court on a public interest litigation filed by advocate S Louis, who sought exemption of the minimum balance criteria for the accounts in which old-age pension amount is credited.

It ordered the Reserve Bank of India, the State Bank of India (SBI) and the Union joint finance secretary among others to file their response and posted the matter for hearing after two weeks.

The petitioner had submitted that the collection of penalty in such cases would defeat the purpose of the old-age pension scheme, which was aimed at helping people aged 65 and above who did not have financial support and to those suffering from certain conditions such as physical and mental challenges.

Citing an example, he said the Alangulam branch of the State Bank of India deducted Rs 350 as penalty from the pension amount of Rs 1,000 of a 75-year old woman for not maintaining minimum balance.

The petitioner said he wrote to the branch manager to stop the practice of deducting money from the old-age pensioners’ accounts. But there was no response.

The old-age pensioners were operating bank accounts to receive the monthly pension amount. Under such circumstances, it was not fair to ask the account holders to maintain a minimum balance.

If Rs 350 was deducted from such account, it would defeat the purpose of the scheme itself. The SBI had claimed that it had collected Rs 235.06 crore as penalty from 388.74 lakh account holders who did not maintain the minimum balance.

In all fairness, the amount collected as penalty from the old-age pensioners should be deposited back in their accounts.

He urged the court to intervene and direct the Reserve Bank of India, the Social Welfare Secretary, chairman of the SBI among others to exempt the minimum balance criteria to the accounts of old-age pensioners in the nationalised banks.

As an alternative, they should provide minimum balance once and for all to such accounts enabling the pensioners to receive the full pension amount without any deduction.


RBI's loan classification numbers
don't match banks'

Saloni Shukla, Sachin Dave
The Economic Times
Published on October 30, 2017

Mumbai, October 29: Even as Indian lenders face the central bank’s ire over the classification of loans or divergence that seems to be burning holes in their books, the dispute may be temporary.

RBI’s scrutiny of non-performing assets raises concerns over the way classification is being done by auditors at banks. Three private-sector lenders have together reported more than Rs 12,000 crore in asset classification divergences for FY17 so far.

Divergence in the classification of NPA accounts between banks and the regulator surfaced after RBI pointed out differences in asset classification and provisioning as on 31 March, after the annual risk-based supervision. The divergences are not only negative surprises for investors but also highlight the inability of managements and auditors to properly assess stress in loan portfolios.

Yes Bank reported a divergence of Rs 6,355 crore for FY17, while this number was at Rs 4,177 crore for FY16.

"These loans are from the last fiscal, and mostly related to infrastructure and related sectors. However, in the first six months of the year, about 81 per cent of these loans have either been repaid or their interest and principal payment is now meeting standard account norms," Rana Kapoor, Yes Bank CEO, had said.

Even HDFC Bank had to bear the brunt of the regulator’s audit when it was directed to classify a standard account to the non-performing asset (NPA) category. Another lender Axis Bank, currently struggling under the burden of its legacy infrastructure loans, reported a divergence of Rs 5,633 crore for FY17, while this number was at Rs 9,480 crore for FY16. "We recognise according to the RBI rules. To the extent the regulator has told us you have to recognise this extra, we have done that. But it’s a judgment call at the end of the day, and we are following what RBI has told us to do," said Shikha Sharma, MD & CEO, Axis Bank in an interview last week.

"Were we following the rules earlier? Yes we were. But if the rules are not black and white and there is an element of judgement in them, there will always end up being a point of view."

ICICI Bank had reported a divergence of Rs 5,104 crore in FY16. "This is not a systemic issue. It is an individual bank issue," said YV Reddy, former Governor of the Reserve Bank of India. "In every country, there is a review of the asset classification done by the auditors. So if one auditor your assumption is true that the auditor who
audited a bank wrongly classified an asset, that auditor should be disqualified."

In the coming days, RBI may question the provisioning methodology and NPA figures arrived at by auditors of the banks, say people in the know. ICICI bank and Yes Bank are audited by BSR & Co. Deloitte Haskins & Sells is HDFC Bank’s auditor, and SR Batliboi is the auditor of Axis Bank.

BSR & Co, is an affiliate firm of KPMG India, while SR Batliboi is an affiliate firm of EY India. A detailed questionnaire sent to KPMG, EY and Deloitte did not elicit any response.

According to a person close to the development, there are two reasons for the divergence. First, RBI’s access to information compared to that of auditors and, second is change in accounting standards. According to a major bank’s auditor, the differences are not unexpected.

"The RBI has access to information an auditor may not. Like, if a loan in bank X has gone toxic, the auditor of bank Y may not know, but RBI would," he said. He added that there is a time lapse between auditors preparing an account and RBI conducting inspections.

"What you must look at is the impact on the P&L of a bank due to divergence. In most cases, that is not much," he said.

Another senior auditor told ET that the divergence is due to new accounting standards. India has changed its accounting standards from GAAP to Ind-AS, which is on a par with International Financial Reporting Standards (IFRS), from April 1, 2016.


Your friendly neighbourhood bank branch may go
missing soon and this could be the reason why

The Economic Times
Published on October 29, 2017

Mumbai, October 28: Going to bank, a routine business chore, will soon become part of history, and so will the long queues, vouchers, pins and blue stamps. Banking as you know it is on its way out. Increasingly, banks are setting up digital branches as customers find transacting with machines easier and quicker.

India's largest lender, the State Bank of India (SBI), has taken the lead among public sector banks to experiment with digital branches through its offering SBI InTouch.

The bank now has over 250 such branches which facilitate instant opening of accounts, printing and issue of personalised debit cards, and also offers expert advice on investments through video conference. Another state-run lender, Bank of Baroda, is currently experimenting on a similar format.

Traditional jobs such as passbook updating, cash deposit, verification of know-your-customer details, salary uploads are going digital increasing job redundancies. After the private-sector banks, even those in the public sector are trying robotics to centralise operations and hasten turnarounds which reduces the need for manual workers.

Soon after, HDFC Bank launched an electronic virtual assistant (EVA) a few months ago, State Bank of India (SBI), India's biggest public sector bank, too is testing a chatbot to handle customer queries and explain to them retail products and services. SBI Intelligent Assistant, SIA, might also be a modest beginning that can emerge as a wide phenomenon a few years later. In future, SIA might handle real banking transactions as well.

Branch banking, which just 15 years ago was the only channel, is now the preferred source of day-to-day transaction for very few of urban netizens polled in the ET RICS Retail Banking survey.

Forty per cent of the respondent prefer bank websites to branches for routine transactions as against merely 10% who go to the branch for routine transactions. 20% prefer mobile apps while 17% and 10% prefer SMS and ATMs, respectively. 60% respondents prefer digital banking, a reality which was unimaginable just five years ago.

The penetration of digital banking has gone deeper than just big cities. Even in small towns with less than five lakh population, 38% prefer to go to the website for routine transactions while only 11% go to the branch.

Banks are realising that branch network is not the only means of reaching out to the customer. New age channels like internet, mobile banking and digital wallets are creating new ways to bank. The governments thrust to bring in the non-banked into the banking sphere and its push to prioritise digital transactions have changed the whole paradigm of traditional banking.


Let PSBs stabilise post fund infusion before
mergers: Vinod Rai, Chief, Banks Board Bureau

Dheeraj Tiwar
The Economic Times
Published on October 28, 2017

New Delhi, October 28: Banks Board Bureau chief Vinod Rai welcomed the government's Rs 2.11 lakh crore recapitalisation plan but noted that it would be prudent to let public sector banks (PSBs) stabilise before consolidation is pursued.

"It is a very timely and progressive move to recap banks. We could not have waited endlessly for them (banks) to resolve stressed assets before capitalising them," he told ET, adding that this along with the government's infrastructure spending push would help lift the economy.

There are signs of a revival in growth, which had slumped to a three-year low in the June quarter.

"Already, green shoots are visible in the economy, like manufacturing activity is picking up. We could not have waited endlessly and the credit growth process would have been severely impacted," he said, without the recapitalisation.

Rai said demonetisation had led to banks being flush with liquidity and it was not prudent to simply park these funds with the regulator.

"It was a total waste of money, because it was not earning anything and not being ploughed back into the banking system," he said. "They (banks) were crying for capital, while trying desperately to resolve stressed assets."

The government recognised that it was a systemic problem and has taken steps to resolve it by, among other things, strengthening existing recovery laws and the Bankruptcy Act, Rai said.

"The resolution process has been delayed because process of recognition was long, but now we have a legal system which is well suited for resolution. You can't wait forever and say resolution should take place and only then I would recapitalise," he said.

Globally, governments have used innovative ways to finance lenders and around 19 countries have resorted to recapitalisation bonds. Turkey, Portugal and Ecuador are among the ones that have done so recently, he said. Rai said the right time for consolidation would be when the process of recognition of bad loans and capital support is over.

"Let them stabilise first and after that banks need to sit together, see the elements of stress or otherwise and then go for consolidation," he said, adding that the next fiscal (FY19) will be better for mergers. The government and the Reserve Bank of India want fewer, stronger state-run banks that have the ability to handle the requirements of an expanding economy.

"The key criteria are that there should be value gain for merging entity, HR cultures are taken care of and shareholder value is not lost," he said. The Banks Board Bureau was set up by the government last year to improve governance at banks, help select their leadership and devise strategies for expansion and raising funds.


Nearly A Year After Demonetisation, Reserve
Bank of India is ‘Still Verifying Returned Notes’

The Press Trust of India
Published on October 29, 2017

New Delhi, October 29 (PTI): Nearly a year after Prime Minister Narendra Modi announced demonetisation, the Rs 500 and Rs 1,000 bills returned to banks are still being “processed in all earnest” through a sophisticated currency verification system, the RBI has said.

In reply to an RTI query, the central bank said it has processed about 1,134 crore pieces of Rs 500 notes and 524.90 crore pieces of Rs 1,000 junked notes, having face value of Rs 5.67 lakh crore and Rs 5.24 lakh crore respectively, as on September 30.

The combined value of the processed notes is Rs 10.91 lakh crore approximately, according to the reply.

“Specified Bank Notes are being processed in all earnest in double shift on all available machines (sophisticated counting machines),” the Reserve Bank of India (RBI) said in reply to the RTI query filed by a PTI correspondent.

The central bank was asked to provide details of demonetised notes counted so far.

Replying to a question on providing the deadline for completing the counting exercise, it said, “The verification of notes withdrawn from the circulation is an ongoing process”.

The RBI said at least 66 Sophisticated Currency Verification and Processing (CVPS) machines were being used for counting of junked Rs 500 and Rs 1,000 notes that were deposited with various banks post demonetisation.

The government had on November 8 last year banned the use of old Rs 500 and Rs 1,000 notes and allowed the holders of these currency bills to deposit them with banks or use them at certain notified utilities.

The notes deposited or collected are being verified by the central bank at its offices to establish the total number of currency bills returned and to weed out those that are fake.

Several opposition parties including the Congress and TMC have announced that they would observe November 8, the first anniversary of demonetisation, as ‘Black Day’ and would hold protests across the country to highlight its “ill-effects” on the economy.

To counter the opposition protest, the ruling BJP has decided to observe the note ban anniversary as “anti- black-money day”.

In its annual report for 2016-17 released on August 30, the RBI had said Rs 15.28 lakh crore, or 99 per cent of the demonetised Rs 500 and Rs 1,000 notes, have returned to the banking system.

In the annual report, which was for the year ended June 30, 2017, the central bank said only Rs 16,050 crore out of the Rs 15.44 lakh crore in old high-denomination notes have not returned.

As on November 8, 2016, there were 1,716.5 crore pieces of Rs 500 and 685.8 crore pieces of Rs 1,000 notes in circulation, totalling Rs 15.44 lakh crore, it had said.

“Subject to future corrections based on verification process when completed, the estimated value of specified bank notes received as on June 30, 2017, is Rs 15.28 trillion,” RBI had said in the report.

While the counterfeit currency notes made for a minuscule number, RBI post-demonetisation spent Rs 7,965 crore on printing new Rs 500 and Rs 2,000 bills and notes of other denominations, more than double the Rs 3,421 crore spent in the previous year, it said.


Jobless Growth is A Ticking Bomb: Chidambaram

Mahima Kapoor & Purva Chitnis
The Bloomberg News
Published on October 28, 2017

Mumbai, October 28 (Bloomberg): Congress leader P Chidambaram said the Indian economy is grappling with the “ticking bomb” of jobless growth.

The former finance minister said demonetisation and the rollout of the Goods and Services Tax by the Narendra Modi government have derailed the Indian economy.

Speaking at an event in Mumbai, Chidambaram added that the capital markets are not the indicator health of the economy.

Farm output, jobs, infant mortality, literacy, exports are the real indicators of economy, and I’m afraid they aren’t goods said P Chidambaram.

The Ideal GST Regime

The Rajya Sabha member also criticised the implementation of GST, saying that the indirect tax regime is flawed because of the multiple tax slabs.

Chidambaram hinted at how the GST structure would be, if the Congress were in power, saying that there will be a government in the future that will rectify the current government's mistakes and ensure that the maximum tax rate is capped at 18 percent.

That government will also ensure that 90 percent of the traders and businesses will have to file tax returns only once in six months, and that the number of returns wouldn't depend on the number of states they do business in, he said.

Here are the other highlights from Chidambaram's speech:


v         Demonetisation was not a bold decision, it was taken in ignorance.

v         The government proposed the note ban and the Reserve Bank of India gave it's opinion. That’s a violation of the RBI Act.

v         There was no agenda meeting at the RBI or a cabinet note before the note ban implementation.

v         None of the objectives of demonetisation were fulfilled.

v         This was one of the biggest scams of the country.

v         Small and medium enterprises have been wiped out, and businesses have been shut down in many places.

v         Demonetisation is the biggest man made disaster that hit India - worse that tsunami or Mumbai floods.

v         The misery was unparalleled where daily workers had no work for over two months.

v         The government believes that the entire country is full of thieves and that all the money is black.

v         Every single rupee of Rs 15 lakh crore has gone back to the RBI.

v         Out of Rs 15 lakh crore only Rs 100 crore was found to be fake by the RBI.

v         Demonetisation is like a Diwali cracker once you burst it, you are done.

Economic Slowdown

v         In six quarters, India's GDP came down from 9.1 percent to 5.7 percent.

v         Every 1 percent decline is Rs 1.5 lakh crore lost from the Indian economy.

v         The trend growth is nowhere near 9 percent that BJP promised.

v         When crude prices fall, the government should reduce petrol prices. They are squeezing you.

v         The economy is at a decline but it can be arrested but right decisions need to be taken.

v         Otherwise we are afraid that we are at jobless growth.


The Tyranny of ‘do Everything Else’
and Wait for a Crisis

Shankkar Aiyar
The New Indian Express
Published on October 29, 2017

You can count on Americans to do the right thing—after they’ve tried everything. This quip, widely attributed to Winston Churchill, could well be applicable for policy makers in India. Whether it is Green Revolution of 1960s, the liberalisation of 1991 change is stalled for and by the equivalent of Churchill’s trying out everything else, and comes only in the wake of crisis. The crisis of non-performing assets has been a constant punctuation in every discourse on the economy. The emerging head of the hydra of stressed loan accounts was first sighted as early as in March 2010—in the first Financial Stability Report of the RBI. Since then the trend accentuated —first in priority sectors and later in real estate and infrastructure.

By June 2012 growth in NPAs outpaced credit growth by a wide margin—NPAs grew at 43.9 per cent outpacing credit growth of 16.3 per cent. By March 2012, gross NPAs had crossed the trillion rupee barrier to touch `1,12,489 crore. In the following five years, particularly post 2012, through a combination of factors that include worsening stress and improved disclosure, GNPA figure spiraled to touch `9.5 lakh crore.

Every Economic Survey in the past five years has flagged the issue of stalled projects, stressed loans and capital-starved banks. And since 2011, India has seen three governors—D Subba Rao, Raghuram Rajan and Urjit Patel—at the Reserve Bank of India and three Finance Ministers—Pranab Mukherjee, P Chidambaram and Arun Jaitley.

The imperative of capital infusion was flagged repeatedly. Typically, ‘everything else’ was tried out—from trial balloons of a holding company that would host bank equity and fund capitalisation, to annual homeopathic drip feed of capital through budget, to Indradhanush, to gyan from Gyan Sangam, to Bank Boards Bureau.Most charitably, the measures can only be described as triumph of hope over reality. That these steps would flail in the face of structural issues, was foretold by cynics and critics. That systemic risk represented by the pile-up of NPAs required recapitalisation was also known. It probably needed the shock of the 5.7 per cent first quarter GDP data to bring home the magnitude of the crisis, to stir and shake the system into action.

On Tuesday, the government announced a life buoy for public sector banks sinking in the quagmire of bad loans. The package, the government has asserted, will not affect fiscal consolidation. It will be a simultaneous change in the books of the government and the banks—the issue of bonds and beefing up of equity. The pantheon of experts in North Block believe there will not be any collateral consequence, the package will bolster capital adequacy, ensure lending for growth and enable the draining of the swamp.

Essentially, the stress-stricken lenders will lend to the government, by buying the issued bonds. The government will use the monies to fill the void created by dud loans with fresh equity capital. This is the third major episode of bailout of banks—the biggest till date. The promise of reforms that must follow to prevent recurrences is enveloped in ambiguity.

Be that as it may, the question is if this was so doable, and in the acclaimed cost-neutral way, why did it take so long for the government to act? Did the gee-whiz experts convince the government that economic growth could be possible with poor credit growth? Was this inference propped with two years of 7-plus per cent growth? Was the delay promoted by the obnoxious idea of privatisation of banking by neglect? The government has asserted that the recapitalisation will enable lending, spur investment and boost growth. By reductive deduction could it be assumed that postponement of this action since 2013 has cost the economy job creation and growth?

The larger question about policy making and management of the political economy is why must the obvious course of action await data and the spectre of superlative negatives...of tailspins, depression and doom? This is not the only instance when change had to wait for the threat of implosion. Neither is it the only segment where successive governments have been trying out everything else waiting for a crisis to do the right thing.

Indeed, the rot in the banking sector is a manifestation of the cult of evasion, not doing the right thing till a crisis. Take the power sector—one of the contributors to the bad loans gallery. Every 10 years there is a call for a rescue package. In 2002-2003, state electricity boards (SEBs) were bailed out by the Centre. The expectation was reforms would follow—curbing of theft and competition in distribution. A decade later, the SEBs were back to square one. Come 2015, the Centre unveiled UDAY—this allowed SEBs to shift the debt onto the books of the states.

The causal factor is in the sequence and structure of reforms. Deploying flyover economics India opened private participation in generation, but kept distribution corralled—vulnerable to profligacy, inefficiency and corruption. If power outages haunt India, it is because even after UDAY, SEBs lack financial firepower to plug in. The big elephant in the room is the monopoly of politics over pricing and the monopolistic structure of distribution. Why isn’t the parallel grid of Gujarat a national project? Why not replicate the direct benefit transfer system of LPG for power to farmers?

There is outrage over farm loans, but the fact is agriculture is still under permit raj. The reality of the unviability of farming—principally, due to absence of linkages and small holdings—is well-known. A template for contract farming—under cooperative or collective umbrellas—will deliver scale and enable forward and backward linkages right from inputs to markets. Yet, the idea is pending since 1990s.

Cost and time over runs have haunted projects across sectors from manufacturing to housing. The very existence of stalled/stranded projects—a surreal segment of the discourse—is a reflection of the inability of successive governments to dismantle the tent of rent, the permission raj. The bad loans crisis of the banking sector simply represents the unfinished agenda of reforms—the hard road to efficiency and equity.

Shankkar Aiyar is the author of
Aadhaar:  A Biometric History of India’s
12 Digit Revolution, and Accidental India


Bailout to banks is not
going to cure bad behaviour

S A Aiyar, The Times of India
Published on October 30, 2017

The government is rescuing bust public sector banks with Rs 1,35,000 crore of recapitalisation bonds as part of a Rs 2,11,000-crore package. RBI governor Urjit Patel calls this “a monumental step”. It could more accurately be called a decision to let the pigs keep feeding at the public trough. It does not reform the woeful practices that have led to bad lending and bust banks.

After a lending spree in the 2000s for infrastructure and industrial projects, almost one-fifth of all public sector bank loans are stressed, and over one-tenth are non-performing (payments are not coming). If banks disclosed in their accounts the full extent of bad debts, the losses would wipe out their equity capital. So, they have resorted to accounting tricks to put off the evil day.

They cannot lend more for want of supporting minimum capital required by law. The government rescue will enable them to write off unrecoverable debts, and start lending again. It will also enable zombie companies, whose debts are written off, to invest and grow again. The government hopes this will revive investment and spur the economy.

Alas, a rescue of this sort is not a reform. Chief economic adviser Arvind Subramanian has spoken of four ‘R’s in the new approach to public sector lending. The first is Recognition: setting iron-clad norms (as the RBI has done) for recognising doubtful and bad debts in bank accounts. Second is Resolution, or disposal of bad loans through bankruptcy tribunals, which will either devise revival schemes entailing sacrifices (or “haircuts”) by all parties, or decree liquidation. This process has begun, but its speed and effectiveness have yet to be proved.

The third R is for Recapitalisation, giving banks enfeebled by losses the capital to lend again. The fourth R is for Reform. Here, alas, nothing has been announced.

Without reforms, recapitalisation may simply encourage continued bad behaviour by banks. Subramanian says one reform could be to maximise recapitalisation of the best public sector banks and minimise that of the worst. This would be cowardly half-baked reform, but better than nothing.

A big-bang reform would be privatisation. Private sector banks have mostly thrived even as public sector banks have sunk. Private banks can take quick decisions, resist government pressures to lend to dubious schemes, and accept genuine mistakes. But public sector spending always gives procedure priority over performance, with tragic consequences. Alas, privatisation remains a political no-no.

Subramanian has long talked of bank paralysis caused by fears (in today’s anti-corruption mood) of the four Cs — courts, CVC (Central Vigilance Commission), CBI (Central Bureau of Investigation) and CAG (Comptroller and Auditor General). No reform has been proposed to overcome these.

Bank nationalisation in 1969 led to a culture where banks lent in pursuance of government pressures, legitimate or otherwise. This included risky infrastructure projects lacking many clearances or clarity about cash flows, and suffering from excessive debt-equity ratios. It also meant acceding to informal (and often corrupt) political pressures to lend to cronies, bend rules for them, or forgive their debts. This last pressure has diminished in today’s anti-corruption mood but has not disappeared.

This culture had perverse incentives. The biggest gainers were crooked businesses that habitually inflated project costs, routing all purchases of capital equipment through benami subsidiaries that creamed off 30%. This inflated the amount of borrowing needed by the project and could render a project unviable at birth. Crooked businesses put in just 30% of the project cost as their own equity, and recovered this through project inflation at birth. So, the entire project risk was borne by lending banks, which sank when projects ran into bad weather or bad luck.

Banks should but don’t have the expertise to evaluate all Detailed Project Reports of promoters. Banks typically appoint an affiliate of the State Bank of India (which has the credentials) to screen the proposal and certify it. The SBI affiliate goes through the motions, collects its 2% fee, and signs off with zero liability if its assessment turns out to be rubbish. Bank managers happily lend with certification that protects them from CVC investigations. Herein lie the seeds of many bad loans, culminating in huge losses and recapitalisation.

Public sector banks must create or purchase the expertise for excellent project evaluation. Certification agencies are needed, but their track records must be scrutinised, with penalties and prosecution in suitable cases. Banks must insist on global tendering for equipment to thwart cost inflation by promoters.

Greater diligence in project screening and a quick exit for bad promoters must be the two main aims of purposive bank reform. Recapitalisation is only a palliative.


Capital infusion for banks must be accompanied
by reforms or it will be in vain, say experts

Mayank Jain, The Scroll Online
Published on October 28, 2017

The experts say public sector banks must be more disciplined
 as their indiscriminate lending led to the bad loan problem

New Delhi, October 28: Public sector banks in India are in crisis. Saddled by bad loans amounting to Rs 7 lakh crores as of June, they are unable to provide fresh loans. Most of them are facing a capital crunch. In April, it was reported that credit growth for banks had hit a 60-year low in the 2016-2017 financial year.

To solve some of these problems, the government on Tuesday announced a plan to inject Rs 2.1 lakh crores worth of capital into public sector banks through a combination of budgetary support, market borrowings and bank recapitalisation bonds. Over the next two years, the government would directly pay banks Rs 18,000 crores by buying their shares while the banks would be expected to raise Rs 58,000 crores from the market. The remaining Rs 1.3 lakh crores would come from recapitalisation bonds.

Recapitalisation bonds are instruments issued by the government that banks can buy, using the excess deposits they have accumulated after the demonetisation of old bank notes last year. The government will, in turn, use the money thus raised to provide more capital to the banks. This would ensure the banks have adequate capital that meets regulatory requirements and allows more lending.

India’s bad loan problem is not new. Over the last few years, as the number of stressed assets – loans unpaid for more than nine months – rose consistently, banks expected the government to infuse capital into the system to help them tide over the crisis. But the government could do so only in a limited capacity. It launched programmes like Indradhanush in 2015 – which promised to pay state-run banks Rs 70,000 crores over four years – but these measures have failed to get rid of the high bad loan ratio and rejuvenate the banking system.

The government now intends to infuse Rs 2.1 lakh crores into public sector banks – an amount most experts deem adequate, since their estimate of the banks’ requirement is around Rs 1 lakh crores. However, they strongly suggest that unless such an infusion of capital is accompanied by long-term reforms, the banking system will remain hobbled with problems.

Improving credit flow

“The problem about the health of public sector banks remains and it will need to be fixed,” said Radhika Pandey, a consultant with the National Institute of Public Finance and Policy, a research body. “Unless private investment picks up, it is yet to be seen if the credit flow in the economy increases.”

A major challenge to credit growth in India is the twin balance sheet problem – where the balance sheets of banks are full of bad debt and the corporate sector struggles in a slowing economy. This problem was first mentioned in the 2014-2015 Economic Survey of India. To counter this, experts say measures must be taken, such as merging weaker banks with stronger ones.

Even the government has said that its actions will not be limited to recapitalisation and that it also intends to boost lending by public banks through a Mudra Protsahan campaign, based on the Micro Units Development and Refinance Agency or Mudra scheme that provides loans to micro, small and medium enterprises.

Awarding performance

Among other reforms, some experts suggested giving capital to banks based on their performance, in order to bring about discipline in the banking system.

“Banks need to be given capital based on the strength of their balance sheets and weak performers need to be brought up to speed,” Reserve Bank of India Governor Urjit Patel said in a written statement on Wednesday. “It will allow for a calibrated approach whereby banks that have better addressed their balance sheet issues and are in a position to use fresh capital injection for immediate credit creation can be given priority while others shape up to be in a similar position. This provides for a good way of bringing some market discipline.”

Radhika Pandey also pointed to problems in the lending policy of public sector banks. She said these institutions had allowed non-performing assets to build up as a result of their indiscriminate lending, and recommended greater vigilance on the way loans are given and to whom.

Bad loan problem too big?

However, former Reserve Bank Deputy Governor KC Chakravarty said in an interview to BloombergQuint that a capital infusion of Rs 2.1 lakh crores is “too little” when stressed assets in India’s banking system amount to Rs 10 lakh crores. “My apprehension is that it is too small money,” he said. “The NPAs of the banking system, a majority of which is with the public sector banks, is already Rs 10 trillion. Now, if you see the provisioning gap, the provisioning coverage ratio is only 40% if you see all the banks. So already there is a gap of Rs 6 lakh crores.”

Provisioning essentially means money that banks keep aside for loans that they expect to go bad. Gross non-performing assets is simply net non-performing assets plus provisioned money set aside by banks. Currently, the provisioning ratio is around 43% for all banks compared to the non-performing assets.

Anil Gupta, vice-president of the credit rating agency ICRA, agreed that there is a large provisioning gap in the banking system, but said that much of it is expected to be covered by the government’s capital infusion and the banks’ own profits. He, however, said that if the plan to raise part of the money from market borrowings does not work out well, then the amount of capital could prove inadequate to boost lending.

“The grey area is those market borrowings of Rs 58,000 crores which may or may not happen as planned,” he said.

Pointing out that long-term reforms are the need of the hour, he suggested a stricter underwriting process (by which a lender determines the risk of lending to a borrower) for loans, and merging smaller banks with larger ones.

“Banking sector reforms are required at all levels to ensure that we do not end up in the same position again after five to 10 years,” he said. “The credit cycle in the years after 1995 was also very bullish but we ended up in an NPA [non-performing assets] situation like this. Banks need to strengthen their process of providing loans so that they go to genuine buyers who can repay on time and so on.”


Dear FM, please attach strings
 to bank recapitalisation

Tamal Bandyopadhyay, The Mint
Published on October 30, 2017

While announcing the big fat recapitalisation of banks, any government, anywhere in the world, is bound to face the predicament of Larry Fortensky. On his wedding night at Michael Jackson’s Neverland Valley Ranch at Santa Barbara County, California, in October 1991, Fortensky—Elizabeth Taylor’s seventh husband from her eighth marriage (she had remarried Richard Burton)—knew what exactly he was expected to do, but his challenge was how he could do it differently from the past husbands of much-married Taylor.

How could India’s finance minister Arun Jaitley be different from his predecessors who have, since 1994, continuously thrown lifelines to many failing banks, using tax payers’ money. Jaitley’s over-Rs2 trillion bank recapitalisation package, announced last week, is the largest “bailout” in Indian banking history.

Most analysts are gung-ho on India’s plan to pump so much money—more than one-third of the core or tier I capital (equity and reserves)—into state-owned banks. Investors too have sent a strong signal of their approval.

Reacting to the Rs2.11 trillion bank recapitalisation over a period of two years, the market value of state-owned banks zoomed Rs1.2 trillion in one day.

There are three components in the bank recapitalisation package that roughly accounts for 1.3% of India’s GDP—the government will directly pay banks Rs18,000 crore by buying their shares; another Rs58,000 crore will be raised from the market; and Rs1.35 trillion (equivalent to 0.9% of GDP) is expected to come from recapitalisation bonds.

We do not know as yet who will issue the recapitalisation bonds (the government or a special purpose vehicle that can be floated for this purpose), the maturity of such bonds and the coupon. Whether they will add to the fiscal deficit or not will depend on who is issuing the bonds, and what kind of instrument it is. However, the interest outgo on the bonds is likely to add to the deficit, since the government will pay that. At current market rates, the annual interest cost for the government would be about Rs9,000 crore—less than 0.1% of the GDP.

Under International Monetary Fund norms, recapitalisation bonds are not added to the accounting of the fiscal deficit as they are squared off by buying shares in banks. In India, however, such bonds in the past were taken into account since the government pays interest and eventually redeems them. If they are issued by quasi-government institutions, such bonds will be treated as contingent liabilities of the government.

The first tranche of recapitalisation bonds was issued by the Indian government in 1994. In the 1993-94 Union Budget, the then finance minister Manmohan Singh announced “provision for a large capital contribution of Rs5,700 crore to the nationalized banks” to protect “the viability and financial health of the Indian banking system”.

In the same budget, Singh announced the government’s decision to allow State Bank of India and other nationalized banks to access the capital markets for raising fresh equity, even as the government would “continue to retain majority ownership, and therefore effective control” in these banks. The next budget (1994-95) provided another Rs5,600 crore as additional capital contribution for these banks in the form of government bonds. On both occasions, there was no immediate fiscal burden but the government bore the interest cost.

After the 2008 global financial crisis, the first signs of stress in Indian banks were seen in 2010 and since then, the government has pumped in Rs67,734 crore capital to keep the public sector banks running, apart from the Rs70,000 crore fund infusion plan under the so-called Indradhanush plan, over a period of four years between 2016 and 2019.

Of this, Rs52,000 crore has already been infused. The remaining Rs18,000 crore has been included in the latest package. The Indradhanush plan (announced in August 2015), also outlined Rs1.1 trillion being raised by the banks from the market. Of this, the banks till now have raised a little over Rs21,000 crore. The government expects them to raise Rs58,000 crore in next two years. If the enthusiasm of the investors is anything to go by, none would dare to dub it as too ambitious a target.

There is no doubt that the massive recapitalisation plan will help banks clean up their balance sheets, but will it fuel credit offtake and lift the sagging growth in Asia’s third largest economy? Even if the answers to both these questions are in the affirmative, is this the last of the bailouts for Indian banks? In other words, besides taking care of the stock of toxic assets, will it stem the flow of such assets in Indian banking in future?

Highlighting the plight of the Indian economy grappling with its twin balance sheet problem—over-leveraged companies and bad-loan-laden banks—the Economic Survey 2016-17 has mentioned that more than four-fifths of the NPAs are in the public sector banks, where the NPA ratio had reached almost 12% of loans in January 2017. This is higher than any other major emerging markets, with the exception of Russia. Since then, the pile of bad loans has risen further.

The stressed loans of the banking system—including NPAs and restructured loans but excluding written-off loans—are now at least Rs9.5 trillion or 12.6% of the overall credit portfolio of Indian banks (all banks have not announced their September quarter earnings as yet).

Even though roughly one-third of the bad assets have already been provided for, banks are expected to use much of the recapitalisation money to clean up their balance sheets. The package will encourage them to aggressively set aside money and take deep haircuts for resolving the bad loan problems. Besides, the capital will also be used to meet the international Basel III norms that will kick in by April 2019.

Indeed, rising bad loans have created a fear psychosis among public sector bankers and they aren’t too willing to lend but the bank recapitalisation package is unlikely to revive growth overnight, as the lack of demand for credit is a far bigger problem than banks’ ability to lend at this point.

In fact, this is why the government could delay the capital infusion. Had the banks been flooded with new loan proposals, the recapitalisation announcement would have come much earlier. The capital infusion will, of course, help the government-owned banks fight it out with private banks and non-banking financial companies for their share of loans. Also, even though the large corporations do not have big investment plans, the micro, small and medium enterprises are looking for money and the government-owned banks will be able to support their credit demand.

While announcing the first bank recapitalisation plan in the 1994 budget, Singh had said: “While undertaking such a large injection of capital into the banks, specific commitments will be required from each bank to ensure that their future management practices ensure a high level of portfolio quality so that the earlier problem does not recur.” Had the government stuck to this, we would not have seen recurring bailouts of Indian banks.

Jaitley has indicated that the government will use discretion while allocating capital to banks. He has also said that a series of banking reforms will accompany the capital infusion. Reserve Bank of India governor Urjit Patel has said those banks that have worked harder to deal with their problem loans will get priority in access to fresh capital. I hope that both Jaitley and Patel will walk the talk. If we want this to be the last of the bailouts, the government must not be democratic in the distribution of capital. And, many strings must be attached to this lifeline. Only the efficient banks should get it.

There is no need to keep some of the banks alive to collect public deposits and buy government bonds; if they do not know how to handle credit, they have no business to be around as banks’ primary job is to give credit and support the economic growth using savers’ money.

Many research houses are dubbing the recapitalisation plan as India’s TARP (Troubled Asset Relief Program) moment. In October 2008, the US Treasury announced up to $700 billion TARP to save its privately managed banks from the so-called subprime mortgage crisis in the thick of the global financial turmoil. By December 2014, when the programme ended, the government had invested $426.4 billion but recovered more—some $441.7 billion. Will the revitalized banks in India be able to pay back to the government? They can, if the government follows up with reforms in state-owned banks, which have been pending for long.

The Rs2.1 trillion recapitalisation package is only half the story. I would love to hear Jaitley telling the bankers “Mere dost, picture abhi baki hai” (My friend, the story is not yet over) and unveiling the reforms package soon after the contours of the recapitalisation are in place.


Interview: P. Chidambaram, Former Finance Minister
‘Modi Doesn’t Talk of Achhe Din Now,
He Knows People Will Laugh’

Swati Chaturvedi, The Wire Online
Published on October 29, 2017

New Delhi, October 28: Former finance minister P. Chidambaram talks about the Modi government’s handling of the GST, Robert Vadra, Karti Chidambaram, attacks on the opposition, Gujarat elections and more in an interview with Swati Chaturvedi. The following is the verbatim transcript of the interview:

Swati Chaturvedi: Hello and welcome to The Wire special. I am Swati Chaturvedi and I’ll be talking to P. Chidambaram, former finance minister, about the economy, how its growth has collapsed, about the corruption charges against his son, when will Rahul Gandhi finally give this country a proper opposition, and also what has happened to freedom of expression. Let’s start off with your favourite subject, the economy. The UPA-II had policy paralysis and now, Arun Jaitley, the current finance minister blames everything as a legacy issue. He says that you had left the banks with such NPAs (non-performing assets) that he had no choice but to bail them out. What do you say?

P. Chidambaram: What was the NPA level in 2014 and what is the NPA level today? There is a bunch of loans. One set of the loans are NPA on 2014.

Chaturvedi: Correct.

Chidambaram: But you forget that the other sets of loans are performing loans. They were performing assets. Why have those performing assets become non-performing assets today?

Chaturvedi: Tell us.

Chidambaram: It is because the economy has taken a downturn. And therefore, what was a performing asset has become a non-performing asset. The NPA level in 2014 was only 3 lakh crore. The rest was perfectly performing, interest was being paid, instalments were being paid. Perfectly performing. If they’ve become non-performing today, it’s because the economy has been mismanaged and those loans have become non-performing assets.

Chaturvedi: My point is different. All public sector banks are owned by one single owner, who arm-twists them; they are milch cows of whichever government is in office. It was the same in your tenure, it is the same in the NDA’s tenure. What do you think should be done now? Forget about the political blame game which is always ongoing. But you, when you were finance minister, were the single biggest owner of public sector banks and now it’s Arun Jaitley. What do you think is the solution to this?

Chidambaram: I do not think that the opinion in the country has turned around to say “let’s privatise public sector banks. Political parties can only reflect public opinion.

Chaturvedi: But don’t you think all political parties, including the Congress, treat them as a milch cow? There are 50 people who own the biggest debts, these 50 people have remained the same during both the UPA and the NDA.

Chidambaram: That’s not correct. There was no occasion when I had picked up the phone and told a chairman, ‘give this loan’. In fact, SBI’s chairperson who just retired, Arundhati Bhattacharya, made a statement that no one ever told her to give a loan to A or B. I don’t know what’s happening under this government. Speaking for my government, speaking for myself, I can say with the utmost confidence we have never asked any bank to give a loan to A or B.

Chaturvedi: At all ever?

Chidambaram: Never.

Chaturvedi: Because they outline cases like Vijay Mallya. They say that the loans were evergreen to Vijay Mallya by the UPA. And they are bearing the brunt of it.

Chidambaram: Let them name who told the chairman of the consortium. Please understand most loans are not single bank loans. They are consortium loans. No one has the capacity and influence to reach out to all the chairmen of the banks. In fact, in the UPA we started taking action against the Mallya account, the excise department started taking action, the service tax department started taking action, the income tax department started taking action, the airplane was impounded. All that is on record. To suggest that the UPA or somebody in the UPA government told the chairman of the banks to give a loan to Mallya is an outrageous lie.

Chaturvedi: Now, that was just great – GST was pioneered by the Congress. It was scuttled at every level by the BJP, by the states and in the Rajya Sabha and the Lok Sabha. Now the GST has come along with of course demonetisation and I think it is a disaster. What do you make of the twin blow that has struck the economy? Was this the kind of GST that you wanted as finance minister.

Chidambaram: This is not GST.

Chaturvedi: Really?

Chidambaram: You have to call it by some other name or some other acronym.

Chaturvedi: Your leaders call it ‘Gabbar Singh Tax’.

Chidambaram: I don’t even want the initials ‘GST’ to apply, the alphabets GST to apply. GST by definition is one rate. In the transition period, you can have a rate plus and a rate minus, demerit rate and a merit rate which is what the chief economic advisor recommended in his report. But they have got eight rates and upon that they have got cesses and upon that they have given liberty to state governments to withdraw taxes. For example, Gujarat, a couple of days ago withdrew some tax on some commodities peculiar to Gujarat.

Chaturvedi: Khakhra, namkeen and man-made yarn.

Chidamabaram: This is a complete mess of a GST. This is a caricature of a GST. Everything about this law that they made and the tax they have introduced is flawed. Concept, design, structure, rates, backbone, compliance requirements. Everything is flawed. So if you have so many flaws in a tax that you are introducing, this is the mess you will create. Add it to demonetisation, this practically killed small and medium enterprises in this country. On the micro, the less that the better, they have all shut down.

Chaturvedi: You had once said that Narendra Modi’s knowledge of economics was confined to a poster stamp. It has been three and a half years of this government, have you had a chance to review that opinion or do you still hold the same?

Chidambaram: Please remember that was in response to his jibe that the exchange rate and the finance minister’s age were trending together, or something to that effect. When he said that, I told him, since his knowledge about the exchange rates was obviously very limited, I made that comment. Remember the BJP’s official position was that if we come to power, the exchange rate will be 40 rupees a dollar. Please ask him to enforce that promise and make it 40 rupees a dollar! Along with demonetisation and GST, if the rupee becomes 40 to a dollar, that would be a death knell for India’s economy for the next 20 years. Therefore, I think the prime minister has candidly admitted that his knowledge of economics – I don’t blame him for that, he is not a trained economist, he was never in the central government. So macroeconomics is something which is foreign to most chief ministers. So today, apart from a chief economic advisor, he has to create a structure in the NITI Aayog and he has put a couple of people there who are supposed to advise him in economics. And above that, he has now resurrected the economic advisory council and he has put five people there who are supposed to advise him and advise him alone, which is a candid admission that he relies upon advice on economic matters.

Chaturvedi: Now since you are talking about economics – when they change the rate, how do we understand growth, what do you have to say about that? Also, that a lot of the things that they are doing like even the bank recapitalisation is something that you have done earlier. What could they have done differently and what ideally would have ensured that India’s growth story had not collapsed the way it has?

Chidambaram: They could have stopped from messing with the economy. They could have avoided demonetisation. Nobody advised demonetisation and even today we don’t know whose brain it was. They could have certainly taken our advice on GST, after all, I announced GST, UPA was the author of the GST. The first bill was introduced by [Pranab] Mukherjee and they could have taken our inputs on GST and designed the GST. Why could not a neutral body design the GST law rather than be located only in the revenue department and the PMO? A neutral body could have designed the GST.

Chaturvedi: But they can turn around and say that you could also have given it in the hands of a neutral body rather than keep it to yourself.

Chidambaram: We had come up with GST based on a model recommended by the finance minister’s council after they had visited a dozen countries where GST is enforced. So the finance minister’s council was a kind of a neutral body. They had visited a dozen countries, came back and recommended the model which was in line with the accepted GST model. You made a mockery of the model, you have made a mess of the model when you designed it within the revenue department and with the PMO, when you introduced multiple rates.

Chaturvedi: Narendra Modi came and he said we are going to have ‘Achhe Din’ – good days. Three and a half years down the term of the NDA government led by him, do you think anybody is experiencing ‘Achhe Din’ and is the good governance promise being followed?

Chidambaram: Even the prime minister no longer speaks of  ‘Achhe din.’. In his rallies now he has not uttered the phrase ‘Achhe din aane wale hai’ or ‘Achhe Din is coming’, he has avoided it. Just like ‘India shining’ was there for about a few months and it was buried, Achhe Din is now buried. Even Modi knows if he talks about Achhe Din today, people will laugh. He doesn’t talk about Achhe Din knowing that those promises cannot be redeemed by this government. I think now he is talking about other things, things like Swachh Bharat and things like that.

Chaturvedi: New India

Chidambaram: New India. But that is simply a slogan replacing another slogan. If slogans can drive economic growth, if slogans can sustain the government, India Shining should have sustained the Vajpayee government. It did not.

Chaturvedi: And Modi has said there was huge of amount of corruption in UPA-II and that this government will crack down heavily on corruption. Do you think that is a jumla? I will give you two examples. He said the moment he will be in office, Robert Vadra will be arrested in a month. It has been three and a half years and there are lots of cases against your son as well.

Chidambaram: There are no cases, you have got it wrong. There are allegations.

Chaturvedi: There are allegations. So my point is do you think these things are held over the heads of opponents as a political thing or is there any action against what they call is large-scale corruption?

Chidambaram: I don’t want to comment on anything that concerns me because I am pretty secure in my beliefs and conviction, that we have done nothing wrong. Leave that aside. There were serious allegations of corruption in the telecom sector and the coal sector. In the coal sector, there has been one conviction – of civil servants. I think one of the former ministers, I am not sure. In telecom, there has been no conviction so far. So only when the cases go to court and end in a judgment can we come to the conclusion if there was actual corruption or not. Now the government seems to have given up on UPA-II allegations of corruption, they have now gone back to Bofors. This shows the government is desperate to put the tag of corruption on the Congress party. Now in Bofors, there is a judgment which says no evidence was presented before the CBI.

Chaturvedi: Do you think it’s slightly incredulous that no action has been taken against Robert Vadra? They made it a huge poll issue, the whole damaad-Ji corruption case?

Chidambaram: As I said, I don’t want to comment on allegations. If there is corruption, the law requires you to file a charge sheet, go to court have charges framed and start a trial. Now for the media, allegations are enough. As someone said, everyone is presumed guilty until proven innocent. But for a lawyer, for a person trained in law, we take the exact opposite view – everybody is presumed innocent until proven guilty. The only way you can prove anyone guilty is under the rule of law. That is the only way, there is no other way. You have to file a charge sheet, have charges framed at the court and conduct a trial. There is one other celebrated case they had against the then telecom minister, but even the charges could not be framed. At the stage of the charge sheet, the court threw it out. But imagine, recall the sound and fury around that case but the chargesheet itself was thrown out. I won’t comment on allegations. I will respond when a charge sheet is filed against somebody, then I think the government has a duty to respond to that. Nobody in the UPA has an obligation to respond to an allegation.

Chaturvedi: Industry says – let’s go back the economy – the tax inspector raj has been unleashed. If you write something against the government or the government doesn’t like you for some reason, it’s a government which is thin-skinned with any kind of criticism. We saw yesterday night in Chattisgarh a midnight knock –  not a midnight knock, a 3:00 am knock – a journalist was arrested because he possessed a CD about one of the ministers. Now, what do you think, in this kind of climate, is FDI going to come – with, we have some very strange VAT laws and so on. How do you see that panning out?

Chidambaram: I don’t think FDI has anything to do with this. Foreign money will come to India as long there is an interest differential between the interest and the returns offered by the Indian market and the returns offered by the US market or the European market. Which is why the FDI inflows are very high. Now as far as tax terrorism is concerned, I go by data, I go by facts. Now the facts before me show that they have made some draconian amendments to the tax laws, especially to the Income Tax Act. They have armed their tax officials with excessive power, including the power to not disclose reasons. I think the investigative agencies are in overdrive in harassing business persons, and since the very powerful and very rich seem to be protected, the brunt of the efforts of the investigative agencies fall upon the small business persons. Which is why no businessman today wants to invest anything more or expand businesses. There is no entrepreneur today who is happy that…is happy to remain invested in India, which is why no additional investment is taking place, and we have a list of amendments they have made to tax laws which I think a future government would have to reverse.

Chaturvedi: Really?

Chidambaram: Absolutely, and many of the powers given to tax officials would have to be withdrawn. I am sure a sensible future government would do exactly that.

Chaturvedi: Arun Shourie said to me that currently there is an undeclared emergency in the country. Whoever criticises the government is in trouble. What do you have to say?

Chidambaram: Well, that is true. There are numerous examples of people being threatened, silenced and harassed. Much of this can’t be explained as coincidence. When the Mersal controversy broke out, why did an income tax officer visit the Mersal office the very next day? It can’t be a coincidence. They could have done it two weeks earlier, he could have visited two months later. I can’t explain this as coincidence. There are too many examples to rule the theory of coincidence. All that it means is there is someone who is directing these agencies to silence the critics.

Chaturvedi: So would you say that freedom of expression is really under threat? You keep writing about it in your column. Do you really think freedom of expression is under threat in India?

Chidambaram: It is, and not only by knocking doors of people who have allegedly violated the law. I think freedom of expression is under threat in other walks of life, ordinary people wearing a set of clothes as a form of expression, writing blogs as a form of expression, tweeting as a form of expression, putting up cartoons as a form of expression, speaking in universities as a form of expression, and that is being threatened. My scheduled lecture in IIT Delhi was canceled the previous day. Sitaram Yechuri’s lecture in Nagpur was canceled. There are numerous examples of this and therefore I think the overwhelming feeling among the people is that this dispensation is clearly silencing or threatening people into silence.

Chaturvedi: Two examples– Raghuram Rajan when he was removed, the way he was removed and how demonetisation happened – how the autonomy of the RBI was compromised in a single fell blow. Do you agree with that?

Chidambaram: Yes I have written about it. I do not think RBI covered itself in glory when it received the letter on the 7th of November, called a ‘truncated board meeting’, and obediently endorsed the proposal on the 8th of November, which I think was a serious blow to the autonomy of the RBI, and I am afraid they have not recovered from the blow yet. World over, central bankers are of a very poor opinion of our RBI after the demonetisation fiasco.

Chaturvedi: We saw institution there with the RBI, and we have seen another where you very pithily tweeted that the election commissioner, what happened with the Gujarat dates… What do you think happened, there has been so much institutional damage in the three and a half years of this government. Why has so much institutional damage taken place?

Chidambaram: Institutional damage takes place when institutions don’t stand up. People in power will attempt to damage institutions, but those who are manning the institutions should be able to stand up. If they don’t stand up, the damage will happen. It’s sad that the Election Commission announced dates of election for Himachal and Gujarat with an interval of 13 days. Let me argue this way. If the Gujarat date had to be deferred to the 24th of October, Himachal could also have been announced on the 24th of October. What was the need to announce Himachal 13 days earlier and Gujarat 13 days later? Unless the intent was that the Himachal Government should be restrained from making any announcements but the Gujarat government be given a 13-day period to make announcements.

Chaturvedi: Clearly not a level playing field.

Chidambaram: Clearly not a level playing field, clearly very discriminatory, and clearly exposes that the Election Commission came under pressure.

Chaturvedi: Final two questions. The government made a U-turn on Kashmir– they were trying this muscular policy of not engaging in talks and they appointed a new Interlocutor. What do you think the sensible approach would be now, considering what happened with the pellet guns and so forth?

Chidambaram: I don’t think they have taken a U-turn, I think this is simply a diversionary move. You have heard the army chief, you heard the minister of state of the PMO yesterday. I think those two voices reflect the real view of the government. The appointment of an interlocutor – and they have even denied he is an interlocutor – the appointment of Dineshwar Sharma, is a diversionary move to please or appease a section which says ‘why are you not holding talks?’ After I heard the army chief and MoS PMO, I don’t think this gentleman has the mandate to hold meaningful talks with all sections of the people. It’s only when he talks, I will know if he talks at all.

Chaturvedi: But looking at what’s happening in Kashmir, with the pellet guns and Major [Leetul] Gogoi tying up that voter to a jeep, and this kind of hyper-nationalism and whats happening in campuses – JNU was branded anti-national. How do you perceive all of this?

Chidambaram: I think the government has a completely misguided policy on Kashmir and the situation in Kashmir is worse than any time before. Much worse than what it was in 2011. All the good work done from 2011 and say up to the middle of 2015 after the NDA government came to office – all that has been wiped out in the last two years.

Chaturvedi: Are you worried about it?

Chidambaram: Of course. I am very worried about what’s happening in Kashmir and we have people meeting us from J&K regularly, I think there is a deep ferment in the Valley. The approach of this current government is misguided, wrong and will lead us on a slippery slope. This appointment of an interlocutor should not lead us to think that there is a change in the heart of the government. I don’t believe there is a change of heart or change of approach, I still believe they continue to hold onto their muscular policy, and that is the military solution.

Chaturvedi: Final question. India desperately needs an opposition. Every democracy needs one but we really need one right now. Your party got 44 seats the last time and Rahul Gandhi is going to become the president of Congress. Will we finally get a decent opposition or is he going to, as the BJP says, a failed dynast?

Chidambaram: We are the opposition. There are only two parties with a national footprint – one is the Congress other is the BJP. No one can wipe out the footprints of the Congress in every part of India, every town of India and every village of India. Yes, in the last election people returned only 44 seats to the Congress but that doesn’t mean they won’t vote for the Congress again. We have to convince the people that the governance of the BJP has brought about jobless growth. He talks about vikas and development. It is vikas without jobs, vikas with stagnant growth in rural India. We have to convince the people that this kind of governance the BJP is giving only strengthens forces which will divide the country and does not bring about the kind of development that we require. Look at our rank in the Hunger Index, look at the level of malnutrition in the country. Look at the number of people who are destitute in this country. Look at the number of people who do not have quality elementary education, look at the number of people who do not have access to basic medical care. I am not alleging all this happened post-2014, what I am saying is there was always an effort to improve all these things and things in fact improved. After 2014, there has been no effort to improve the metrics. There has been a deterioration in the metrics. On the hunger index, our score was 17 in 2014 and it’s 31 today, that’s because you neglected and refused to implement the National Food Security Act, imagine if MGNREGA also had been buried, the way it was threatened to. Imagine the kind of misery.

Chaturvedi: Modi said he was keeping it on as a ‘monument of shame’

Chidambaram: Monument of shame! Thank God MGNREGA is in place. But the NFSA was not implemented that’s why there is so much hunger, so much malnutrition. Likewise, the National Health Mission which we rolled out has been stopped in its tracks. Likewise, the Right to Education Act, which we passed has not been implemented. Therefore, instead of taking the country forward – in 60 years the country moved forward, yes maybe it moved forward in small steps, maybe it stumbled along the way, but at least the movement was a forward movement –today, I don’t get the impression we are moving forward. In fact, we are moving backward in many ways. In many areas, the progress seems to have halted, which is why I said the model of government which the BJP has adopted and implemented in this country is regressive and halted progress and brought about a deterioration in many ways.

Chaturvedi: But the question a lot of people ask is if Rahul Gandhi can even take on Narendra Modi, who is an outstanding orator and is sharp and is in constant campaign mode. Your leader, on the other hand, the BJP calls him a failed dynast and says he doesn’t fully engage, and you never know if he will take off somewhere

Chidambaram: I want to answer to this ‘dynast’ question as it has been used more than once.

Chaturvedi: Smriti Irani called him a failed dynast.

Chidambaram: Who is the last member of the Nehru-Gandhi family who has held any constitutional office since 1989? In the last 28 years, there has not been a member of the Nehru-Gandhi family holding any position such as a minister or any other constitutional position. In the 28 years, there have been 6-7 prime ministers, numerous ministers, numerous governments, so this argument that a dynasty is controlling India is rubbish and let us put an end to this frivolous and foolish argument. Question is – Vajpayee was also a great orator. I think he was a more persuasive speaker than the present prime minister, and he was a man with a large heart. He was genuinely very compassionate and one can’t accuse him of dividing or polarising the electorate. And everybody thought, and I confess even I thought in 2004 that election would be won by the BJP. The media had predicted a resounding victory for the BJP. But the BJP lost. I don’t think you can predict the results of elections which are 18 months away. We are making an effort, we are presenting an alternative argument, an alternative model of governance, we draw upon our record. Our record is a good record with some bad spots. We are drawing upon our record. Yes, mistakes have happened but we are drawing upon our record. The most important aspect of that record is that in 10 years we have lifted 140 million people out of poverty. On that record, I am confident that the people of India will renew or extend their support to the Congress party. If they don’t, we sit in the opposition, if they do, we form our government. But that’s democracy, I don’t think it’s a matter of life and death. It’s a matter of convincing the people of India.

Chaturvedi: Thank you.

Swati Chaturvedi is a journalist and author based in Delhi.

 Source: Internet News papers and Anupsen articles