Agricultural Finance in Agriculture Sector by Nationalised Banks in India - DOC

							            ALL INDIA BANK EMPLOYEES' ASSOCIATION
                             Central Office: “ PRABHAT NIVAS ”
                   Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
                   Phone: 2535 1522,6543 1566 & Fax: 4500 2191, 2535 8853
                       e mail ~ chv.aibea@gmail.com & aibea@vsnl.com


CIRCULAR LETTER NO. 26/43/2010/4                                  February 13, 2010

TO ALL OFFICE-BEARERS/STATE FEDERATIONS &
ALL INDIA BANKWISE ORGANISATIONS :

Dear Comrades,

                       Our proposals for Budget - 2010

We furnish herein the letter addressed by AIBEA to the Finance Minister containing
our suggestions for consideration by the Government during the ensuing Budget -
2010.

All our units are advised as under :

1.    Similar letters should be addressed by all our unions at all levels to the
      Finance Minister, Government of India, North Block, New Delhi – 110 001.

2.    Demands Day : Demonstrations should be held on 18.2.2010 focusing these
      demands.

3.    Press Conference / Press Release on 18.2.2010 to release our letter to
      FM on our proposals on Budget to get media focus on our memorandum and
      proposals.

If for local reasons, 18th Feb. is not feasible, the programme can be held in the next
few days to suit local convenience.

Our memorandum to Finance Minister should also be widely circulated amongst our
members.

With greetings,

Yours Comradely,



C.H. VENKATACHALAM
GENERAL SECRETARY
            ALL INDIA BANK EMPLOYEES' ASSOCIATION
                               Central Office: “ PRABHAT NIVAS ”
                   Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
                   Phone: 2535 1522, 6543 1566 Fax: 4500 2191, 2535 8853
                        e mail ~ chv.aibea@gmail.com & aibea@vsnl.com


                                                                   11th February, 2010
Shri. Pranab Mukherjee,
Hon’ble Minister for Finance,
Government of India,
New Delhi.
Dear Sir,
              OUR PROPOSALS & SUBMISSIONS FOR BUDGET - 2010

Amidst your pre-occupation with the finalization of proposals for the ensuing Budget, from
the All India Bank Employees Association we wish to submit the following viewpoints and
suggestions for consideration by the Government and necessary incorporation in the Budget.

Everyone is aware that our All India Bank Employees Association, which represents nearly
half a million bank employees working in Public Sector Banks, Private Sector Banks, Foreign
Banks, Regional Rural Banks, and Co-operative Banks, is deeply committed to the vibrant
role of banks for the economic development of our country. To enable Banks to play this
role, AIBEA demanded nationalization of all Banks in our country. After great deal of
campaign, struggles and strikes by bank employees, in a major political initiative, Madam
Indira Gandhi nationalized 14 big Banks in 1969 and later another 6 Banks in 1980. Thus,
Public Sector Banking has become the mainstay and engine for taking the banking sector
forward with its destined social responsibilities.

The role and contributions of our Public Sector Banks in the last 4 decades has been
commendable, admirable and spectacular. Besides meeting all international norms and
standards, our Banking system in India has proved to the whole world about its inherent
strength even in the wake of the global economic crisis in which many giant banking
institutions have withered away into thin air.

While these are positive aspects of our PSBs, we are concerned that our Banks shsuld be
further enabled to play a more leading and catalytic role for the development of our
economy. While we are aware that the Government is equally, if not more, conscious about
the important role to be played by our Banks, we feel it necessary to make the following
suggestions and submissions.

1.    Public Sector Banks to remain in Public Sector and no reduction in
Government’s Equity to less than 51 % : In the name of liberalizing our Banks, an
amendment was made in 1994 providing for reduction in Government’s equity capital in
PSBs from 100% to 51% and permitting private capital upto 49%. This has greatly reduced
the Government’s control on the Banks. Further, the Boards of these Banks are also
necessarily represented by the private capital to that extent. There have been hue and cry
that this threshold limit for Government’s Equity should be further reduced to less than 51%
paving the way for increasing private capital to more than 49%. This would be direct de-
nationalisation and privatisation of Banks. However we are happy to note that the
Government has consistently maintained that it will at any cost maintain 51% share-holding
in the capital of the PSBs. While this a major welcome and progressive decision, there are
various recommendations of a number of Committees which have recommended for
reduction of Government’s capital to less than 51%. All these recommendations call for an
outright rejection by the Government and announced accordingly in the Budget, to remove
the apprehensions of the people at large about any imminent privatization of the PSBs.
2. No loan from World Bank to capitalize Public Sector Banks:                 It is learnt that
under the pretext of shoring up additional capital to the PSBs, the Government has decided
to avail a $3 billion loan from World Bank. While further capitalizing the Banks is a welcome
measure, one cannot brush aside the possible conditionalities of the World Bank attached to
these loans which will bring our PSBs, directly and indirectly, under pressures from World
Bank to comply with their prescriptions. Hence we submit that the Government should not
proceed with availing the loan from World Bank to capitalize our Banks.

3. Do not amend/delete Section 12(2) of B.R. Act : There are repeated proposals to
amend Section 12(2) of the Banking Regulations Act, 1949, more so to delete this section
which today stipulates a ceiling of 10% on the voting rights of share holders in our private
sector Banks. Needless to point out that deletion of this important condition will facilitate
hostile take over of our private banks by vested interests and big business including by
foreign capital who can today enter our banks upto 74% of capital with the permission of
RBI. This will be a retrograde step and hence it is submitted that the Government should
drop the proposal to amend / delete Section 12 (2) of Banking Regulation Act.

4. Expansion of Banks in unbanked rural areas:                While public sector banks have
grown impressively in the post-nationalisation era, it is equally a reality that total financial
inclusion is still far away. Abut 500 millions of our Indian people do not even have a bank
account and hardly 12% of the population has access to banking credit. While thousands of
branches have been opened by PSBs in the rural and semi-urban areas, it is still meagre
when more than 5.50 lacs of villages in our country do not have the services of a bank
branch. Hence, to achieve the objective of financial inclusion and financial empowerment,
bank branches have to be opened massively in the un-banked rural areas. In this context,
a clear policy guidelines should be announced in the ensuing Budget.

This is all the more necessary because in the last few years the banks have been opening
more branches in the already banked urban / metro areas instead of in the villages.

5. Do not proceed with consolidation and merger of Public Sector Banks: There
are also repeated pronouncements about consolidation of banks in the public sector - both
of nationalised banks as well as of the Associate Banks of SBI. Compared to any other
country, our banking system has not saturated, rather there is a vast space for expansion.
We feel that consolidation and merger of banks in public sector are unwarranted and the
same is wrought will various negative consequences which would be contrary to the basic
objectives for which banks were nationalised by Smt. Indira Gandhi in 1969.

6. Banks should come within the purview of Competition Act, 2002: There are
reports that RBI has proposed for exemption of Banking Sector from the purview of
Competition Act, 2002 which will enable the Banks to merge or consolidate without any
scrutiny by the Competition Commission of India. We strongly feel that no exemption from
this Act should be given to the banking sector, rather, a notification should be issued under
the Act that stipulating any consolidation / merger exercise should fall within the scrutiny of
CCI.

7. Recovery of Bad Loans – the top priority:               Another aspect which has been
disgusting has been the mounting bad loans/Non-Performing Assets in the Banks. While
the Balance Sheet figures indicate some reduction, it is well-known that such reduction is
due to various factors like provisions, write off, interest waivers, one-time settlements,
compromise proposals, re-structuring, etc and not due to recoveries. In fact, in all the
Banks, new bad loans are being added every year and the amount is also substantial. We
have the following demands in this regard.

       a.      Periodical publication of list of Bank loan defaulters of Rs. 1 crore and
               above.

       b.      Defining willful Bank loan default as a criminal offence.
       c.      Further strengthening the powers under Securitisation Act including

              powers to attach the personal properties of Directors, partners,

              owners.

       d.      Prohibiting bank loan defaulters from contesting / occupying Public
               Offices.

       e.      Stringent measures to recover the huge bad loans in Banks.

8. Banks should fulfill priority sector loan targets: Of late we find that Banks are not
reaching the targets prescribed for priority sector loans and especially agriculture loans
including direct lending the agriculture. Priority sector loans should be stepped up. Action
should be taken against non-compliance of targets under agriculture / priority sector credit.
More loans should be given to SMEs, for employment generation, poverty alleviation,
housing, women empowerment, rural development, etc. Interest free loans should be given
to very poor sections for economic survival and sustenance. Small and marginal farmers
should be extended loans at 4% interest.

9. No privatisation or outsourcing of Priority Sector Loans: There are attempts and
tendencies to indirectly privatise the priority sector credit by allowing the Banks to reach the
targets through loans given to private sector for these purposes. It is nothing but
outsourcing the social obligatory responsibilities to the private sector. This should be
discouraged and stopped and Banks should be asked to directly extend credit to priority
sector.

10.     Stop outsourcing of Agriculture sector credit: Even Agriculture sector credit is
privatised and outsourced by allowing the Banks to re-finance the loans given by private
micro credit organizations and showing them under loans given to Agriculture Sector. This
should be also be discouraged and stopped.

11.    Bring all Private and Foreign Banks under Public Sector: While the public
sector Banks in India have shown their strength and dexterity, we find that private sector
banks including the so called big banks like ICICI Bank are very fragile. In the recent years
also number of private banks had collapsed and RBI had to clamp moratorium on these
Banks and hence the Government should consider bringing all private and foreign banks in
our country into public sector.

12.     Release of Funds for Long Term Co-op. Banks:                  The UPA Government
constituted a Task Force headed by Prof. A. Vaidyanathan which has recommended that the
Long Term Agricultural Co-operatives Banks, namely, Agriculture and Rural Development
Banks (ARDBs) need to be rehabilitated and revitalized by infusion of necessary funds in the
form of Recapitalization. The Task Force has recommended for Rs. 5600 crore for Long Term
Sector Agricultural Co-operative Banks. However, the Ministry of Finance, Government of
India, redefined and reduced the financial relief to Rs. 3070 crore, which amount was
approved by the Cabinet of the Central Government in its sitting held on 25.2.2009. While we
are happy that the Government of India has taken the decision to provide the package of
relief measures for improving these Agricultural Credit Institutions which are meant for
providing infrastructure advances for improving the farm production, unfortunately, there
have been no funds forthcoming from the Government. It is an urgent imperative that the
Government should release the funds earmarked for revitalizing Agriculture and Rural
Development Banks to ensure higher growth in farm production.

13. Need to revitalize Urban Banks: Some of the Urban Co-operative Banks in our
country are today facing threats of closures as they are affected by liquidity crunch. Shri V.S.
Das Committee constituted by the Reserve Bank of India has recommended for the evolving
of Umbrella Organisation for rendering liquidity support to the Urban Co-operative Banks in
distress through Emergency Fund Facility Scheme. This Committee estimates a sum of Rs.
2500 crore maybe required for the purpose. It is necessary that this financial assistance be
made available by the Central Government and State Governments and a pronouncement in
the ensuing Budget would help the Urban Co-operative Banks which are in acute distress. It
is also suggested that the weak Urban Co-operative Banks may be merged with stronger
Urban Co-operative Banks or the Dist. Central Co-operative Banks or the Public Sector Banks
may take them over with the consent of the Central Government.

14.    Exempt profits of Co-op. Banks from Income Tax : The Profits of Co-
operative Banks should be exempted from Income Tax as in the past and amendment to
Section 80 – P of Income Tax Act made in this regard should be repealed

15.    To bring about standardisation of service conditions for employees in Co-
operative banking sector: About 90% of Short Term Agricultural Co-operative Banks
have been brought under the purview of NABARD and the Long Term Agricultural Co-
operative Banks also would be brought under the purview of NABARD as per Task Force
Report. Hence we submit that the Ministry of Finance, Government of India, may constitute
a National Joint Consultative Council under the Chairmanship of NABARD for considering
some standardisation and uniformity in matters relating to the service conditions and welfare
measures for the employees working in the various tiers of the Co-operative Banking sector.

16.    Merge RRBs with sponsor Banks: There have been substantial improvements in
the functioning of the Regional Rural Banks. But they are functioning as independent Banks
and in many cases are unwarrantedly required to compete with the nationalized Banks.
Hence there is a case of merger of RRBs with the sponsor Banks. We submit that the
Government of India may consider merger of the RRBs with the sponsor Banks.

17.    Encourage Savings:        We    submit the following suggestions for encouraging
savings.

       a. Interest on Savings Deposits in banks should be increased to 5%.

       b. Interest on Bank Deposits upto Rs. 15 lacs per year should be exempted

          from Income Tax. Already Dividend Income is tax free.

18.     To raise I T exemption limit for bank employees/salaried class employees:
As for the bank employees, there is a genuine demand, as like other salaried sections, for
some more relief under Income Tax by raising the exemption limit to Rs. 3,00,000.

19.     Bonus Act and Gratuity Act: There has been a long pending demand of bank
employees for Bonus eligibility to all employees and officers and for increasing the existing
ceiling of Rs. 3.5 lacs under the Gratuity Act to Rs.10 lakh.

20. Pension scheme for employees of Regional Rural Banks and Co-operative
Banks: Today employees and officers in Public Sector Banks, Private Sector Banks and
Foreign Banks are covered by the pension scheme while the same is deprived to
employees/officers of Regional Rural Banks and Co-operative Banks. We submit that the
Government should consider introduction of some scheme for these employees also as
pension is a social security measure.

21.    Encourage small savings through Daily Deposit Scheme in Banks : While
the Government and the Banks are seeking to increase the rate of savings, there is an
attempt to do away with the Small Deposits Scheme / Tiny Deposit Schemes/Daily Deposits
Schemes in the Banks. Banks must be advised to desist from it and go for more small
savings rather than high cost deposits from the corporates and industrial business houses.
There is also a need for sympathetic consideration of the minimum service conditions of the
Daily Deposit Collectors in the Banks pending for a very long time.

22.     Income Tax on Fringe Benefits: The Tax on Fringe Benefits and perquisites has
recently been ordered to be collected from the employees instead of from the employers.
We request the Government to restore the earlier provisions.
23.    Pension Trusts of Private Banks to be exempted like PSBs: After the
introduction of pension scheme for bank employees in the public sector Banks and private
sector Banks in 1993, all Banks have formed their respective Bank-level Pension Fund
Trusts. While the pension trusts of the public sector Banks are exempted to have their own
administration of the Fund, in the private banks, they are not exempted and hence they are
required to purchase Annuities at a very high cost. Hence it is submitted that private Banks
may also be exempted similar to PSBs.

24.     Revisiting Section 17(2) of IT Act : Under Section 17(2) of Income Tax Act,
contributions above Rs. One lakh to pension fund in private Banks by the employer on
account of their employees have become taxable. There is a need to reconsider this and
restore the erstwhile exemption.

25.     Revive BSRBs for recruitments in Banks: Earlier, Banking Service Recruitment
Board was set up by the Government to undertake the recruitment processes in the Banks.
Subsequently this have been abandoned. Since many Banks have once again started
recruitments in the Banks, there is an urgent need to revive BSRBs and have the common
agency for recruitment of staff in the Banks. Since the Banks have started recruitments in
the Banks, revival of the BSRB is necessary. Today, all the Banks are undertaking the
recruitment process individually and through private agencies at very high cost. This is
resulting in duplication and wastage of public money. This will also help the educated
unemployed youth as BSRB will be a single point agency for recruitment of staff.

Sir, we have submitted our above viewpoints and suggestions in the best interest of our
Banking system, our economy and our people at large. We are sure that the same would
receive your positive consideration.

Thanking you,

                                                                     Yours faithfully,




                                                                  C.H. VENKATACHALAM

                                                                   GENERAL SECRETARY