IDBI Privatisation – Betrayal with Parliamentary Mandate & Mandate of the Constitution

 

By Shri Devidas Tuljapurkar, General Secretary, Maharashtra State Bank Employees Federation (MSBEF)

 

India got independence in 1947. India adopted the road map of process of planning for the economic development. The first five-year plan commenced in 1950, i.e., immediately after India became a republic. One of the priorities in initial years was Industrial Development for which investment in basic & infrastructure industry was essential & precisely with this Industrial Finance Department was established under the aegis of RBI but on realising the fact that those efforts are not sufficient a subsidiary of RBI in the name of IDBI was formed way back in the year 1964 by passing an act IDBI Act 1964. At that time IDBI used to provide credit to big projects in the form of project finance at a cheaper rate & also used to provide refinance to the commercial banks at a cheaper rate and also used to discharge the role of regulator for the banks & financial institutions which used to provide finance to the industries. In order to have focused efforts IDBI promoted subsidiary SIDBI to provide finance & refinance to small scale industries. At that time IDBI was hundred percent owned by RBI but may be on realising the fact that RBI being regulator cannot be the owner of a bank, since it amounts to conflict of interest, ownership of IDBI was transferred to the Government of India in 1976.

In 1991 India chose the path of new economic policy & consequent upon that financial sector reforms in the name of Narsimhan Committee Recommendations were implemented. One of the recommendations of the committee was to create level playing field & in order to do so, all the concessions extended to IDBI in its role as development banker were withdrawn. In order to do so IDBI Act 1964 was repealed & IDBI was corporatized in the year 2003. Thus IDBI was converted into a commercial bank & was permitted to expand its branches & also to accept the deposits. While passing IDBI Repeal Act 2003, during the course of discussions the then Finance Minister Sri. Jaswant Singh assured the Parliament that in all the eventualities 51% of the shareholding of IDBI will be retained with the government of India. Thus, IDBI will act as a Government owned Bank as a listed company. The assurance from the government was on record & accordingly provision was made in the Articles of Associations clause 4 under the head Authorised Capital. In 2006 one of the leading private sector bank, United Western Bank was merged with the IDBI so as to bail it out. In 2008 the name of IDBI Ltd. was changed to IDBI Bank Ltd.

In 2008 entire world was in the grips of Global Financial Crisis. At that time Indian banking was insulated since majority of the banking was in public sector. 2008 to 2014 was the boom period for the economy. During this period, Indian banks lent hugely to the corporate & IDBI was not an exception. This was followed by crisis in steel, energy, mining, etc. sectors & coupled with that Supreme Court litigations in coal, 2G Spectrum etc. led to huge NPA’s in IDBI but the regulator i.e. RBI in connivance with the owners i.e. the Government tried to suppress those potential NPAs by resorting to Corporate Debt Restructuring.

During that period cronies tried to loot lakhs of crores of rupees by utilising their clout in political lobbies. All this resulted into piling of huge NPAs in the banking system which were unfolded consequent upon Asset Quality Inspection by RBI at the instance of the then Governor of RBI Mr. Raghuram Rajan. Thus the NPA which was 6,450 cr in IDBI in 2013 went up to 55,588 cr in 2018 i.e. 27.95% & precisely with this IDBI had to book the loss consecutively for 5 years 2016 to 2020 and due to that RBI imposed restrictions in the form of Prompt Corrective Actions. Government was required to infuse huge capital by providing in the budget but it was not possible for the government to continue to do that for a long period due to budgetary constraints & with this government while presenting budget for the year 2016-17 mentioned in the speech that government intends to dilute its stake in IDBI below 51%. This was followed with the amendment in the Articles of Associations of IDBI chapter “Authorised Capital” para 4 vide which the same was deleted in 2016 & in terms of this Governments stake in IDBI was transferred to LIC in 2018. Thereafter RBI issued press release on 14th March 2019 that IDBI is re-categorised as private sector bank & now government has come out with privatisation of IDBI by selling its stake along with stake of the government owned LIC.

In the above process, government has made policy shift, going beyond assurance given to the parliament on record without following due process in this behalf & thus it amounts to abuse of the parliament. This is ultra vires to the mandate of the parliament.

The Indian constitution provides for socialism, right to equality which includes economic equality & also assures for decent life to all its citizens & precisely with this national movement while evolving post-independence economic policy pledges for nationalisation of banks & insurance. On this background government needs to explain as to how they propose to achieve desired objectives of the constitution which for all practical purposes is the soul of the constitution. Thus privatisation of IDBI amounts to abuse of the constitution. It is parliamentarians who should raise their voice against breach of their privileges since government has tinkered with the assurance given to them on the floor of the house on record. The4 reference in the budgetary speech cannot be a substitute for parliamentary procedure. How far parliamentarians will discharge their role & responsibility in raising their voice nobody knows & thus now burden of raising the voice is shifted to conscious citizens who will have to rise to the occasion & stand for.

 

 

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