Reserve Bank of India should reverse its policy with regard to allowing Non-Banking Financial Companies (like the Adani Capital) to have tie-ups with Public Sector banks (like the State Bank of India) for co-lending to the farmers and other small borrowers. The undersigned demand an immediate reversal of this arrangement as it will have serious implications for the public.
The immediate context
There are reports in the media that the State Bank of India (SBI), India’s largest bank, has signed a master agreement with Adani Capitals belonging to the Adani Group for co-lending to farmers. Ostensibly, the arrangement is for the purchase of inputs including tractors and farm implements in order to “increase efficiency in farm operations and improve productivity of crops”. We outline below our multiple apprehensions with regard to such an ill-fated move and it is our appeal that the RBI steps in to reconsider and roll back.
SBI is the largest bank in India with 22,219 branches, 2,45,652 staff, and 71,968 Business Correspondents, with a track record unparalleled in the history of banking in the country and like other PSBs is driven by the social objectives of the nation. PSBs like the SBI has had a great role in reducing income inequalities, minimising regional imbalances, ensuring affirmative action to correct the historic injustices and so on. On the other hand, private Non Banking Financial Companies’ (NBFC) capacity and operations are very limited and are driven exclusively by its overarching objective of maximising profits. We wish to express our deep concern at the RBI, whether deliberately or otherwise, contributing to this unfortunate situation in which small borrowers, especially those in the informal sector of the economy, have paid a heavy price.
We are rather alarmed by the fact that while the RBI has itself cancelled licenses and even blacklisted a large number of NBFCs (1701 in 2019 alone), has permitted this arrangement of co-lending by banks and NBFCs.
The RBI as the banking sector regulator has repeatedly urged banks to lend more to NBFCs. Incidentally, such loans also qualify for Priority Sector lending targets set for banks. An arrangement such as the one cited here pave the way for NBFCs owned and controlled by the large business conglomerates to make a backdoor entry into the unorganized sector on a much larger scale, riding on the back of a banking behemoth, the SBI.
The banking sector regulator has stipulated that NBFCs provide at least 20% of the loan amount. Moreover, they are to do online verification of Know Your Customer (KYC) Identification, storage of data, capture live images, pay e-stamp duty, report credit information and other such functions. In effect, these stipulations ensure that the NBFCs become the first point of contact for borrowers which in the long run is disadvantageous to the borrowers, exposing them to greater risks.
Small borrowers would be totally dependent on the NBFCs, a situation comparable to the pre-nationalisation era when money lenders and traders controlled most of the lending to farming and small businesses and charged usurious rates of interest to the farmers’ detriment.
It appears appropriate lessons have not been drawn, while taking such move, from the fiasco since 1991 of allowing the entry of private promoters in the banking sector, which resulted in the defrauding of depositors. In fact, several public sector banks were forced to take over such banks in order to protect the interests of depositors. The subsequent entry of inadequately regulated NBFCs and the crisis that followed, especially at the hands of micro-financing agencies, which drove thousands of small borrowers to suicide is still fresh in memory.
Worryingly, we find that some of the NBFCs belong to groups of companies owned and controlled by corporate houses that are already heavily indebted to the public sector banks. Persuading the latter to co-lend with such NBFCs would involve a conflict of interest that could adversely affect the interests of the banks’ depositors.
The SBI-Adani partnership is worrisome
The Adani Capital belongs to an industrial conglomerate, which has already gained significant interests in the storage and transportation of agricultural products, particularly food grains. Indeed, the FCI, another large CPSU, for no justifiable reason, has outsourced the same to corporate houses, including the Adani Group. The conglomerate provides end to end supply chain solutions, operates grain silos and other large storage facilities, controls dedicated railway tracks and rolling stock, supplies technology, purchases fresh products, manufactures food products and markets them, in effect forcing the farmers into its fold, a situation that has already caused nationwide concern among the farmers.
Demand to reconsider
We are aggrieved by the fact that the RBI issued such a notification without holding wide-ranging consultations with all stakeholders, especially the farmers. To us, it appears to be part of the concerted efforts off late on the part of the government to bring the small borrowers, including the farming community, within the fold of the corporate business houses – the most recent example being the farm laws that were rolled back finally after a year-long farmers’ agitation.
We believe that the SBI has the capacity to increase farm and MSME credit through its own branches. It can convert its 71,968 Customer Service Points into small branches, which will provide regular employment to youth and increase credit in the rural and semi urban areas.
Considering the fact that the NBFC sector is inadequately regulated and therefore poses risks that the economy can ill-afford to bear, we feel that there are compelling reasons for RBI to stop issuing licenses to corporates to run NBFCs.
We demand RBI to review its policy on persuading the banks to tie up with the NBFCs for co-lending to the borrowers, as it would yield no benefits to the banks, nor would it be in the long-term interest of the small borrowers.
T. M. Thomas Issac, Former Finance Minister, Kerala
Justice Hari Paranthaman (retd) Judge, Madras High court
Aditi Mehta, Former Additional Chief Secretary, Rajasthan
Dr C P Chandrasekhar, Retired Professor, Jawaharlal Nehru University
EAS Sarma, Former Secretary, Ministry of Power & Economic Affairs, Govt of India
Indira Jaising, Senior Advocate, Supreme Court of India
S. P. Shukla, Former Member, Planning Commission
Prabhat Patnaik, Professor Emeritus, Jawaharlal Nehru University
P. Sainath, Founder Editor, People’s Archive of Rural India
R Nagaraj, Visiting Professor, Centre for Development Studies
Utsa Patnaik, Professor (retd), Jawaharlal Nehru University
V P Raja, Former Chairman, Maharashtra State Electricity Regulatory Commission
V Sridhar, Senior Journalist
Venkatesh Athreya, Hon Professor, Gulati Institute of Finance and Taxation, Thiruvananthapuram
Alok Perti, IAS (retd)
Amitabha Pande, IAS (retd)
Avinash Mohananey, IAS (retd)
Hyndal Tyabji, IAS (retd)
K P Fabian, IFS (retd)
Meena Gupta, IAS (retd)
Nagalsamy, IAS (retd)
Navrekha Sharma, IAS (retd)
Rajdeep Puri, IRS (resigned)
S P Ambrose, IAS (retd)
Sundar Burra, IAS (retd)
Surendranath, IAS (retd)
Centre for Financial Accountability (CFA)
Dalit Adivasi Shakti Adhikar Manch (DASAM)
Financial Accountability Network India (FAN India)
Let India Breathe
The Research Collective
Toxics Watch Alliance (TWA)
A V Joseph Former Treasurer, All India Bank Officers Confederation
Anil Sadgopal, All India Forum for Right to Education (AIFRTE)
Annie Namala, Wada Na Todo Abhiyan (WNTA)
Archana Prasad, Professor, CISLS, Jawaharlal Nehru University
Asha Mishra, Bharat Gyan Vigyan Samithi & All India People’s Science Network
Ashok Choudhary, Working President, All India Union of Forest Working People (AIUFWP)
C P Krishnan, Joint Secretary, Bank Employees Federation of India (BEFI)
Chirashree Das Gupta, Associate Professor, Jawaharlal Nehru University
C H Venkatachalam, General Secretary, All India Bank Employees Association (AIBEA)
Deepak Das, Jharkhand Mines Area Coordination Committee (JMACC)
Dr. S. G. Vombatkere, NAPM (Karnataka)
Gautam Bandyopadhyay, Nadi Ghati Morcha – India
Gautam Mody, New Trade Union Initiative (NTUI)
Himanshu Damle, Public Finance Public Accountability Collective (PFPAC)
Jagdeep S. Chhokar, Professor (retd), IIM Ahmedabad
Johnsily, President, MALAR SHG Federation
Krishnakant, NAPM Gujarat
Mariam Dhawale, General Secretary, All India Democratic Women’s Association (AIDWA)
Meera Sanghamitra, National Alliance of People’s Movements (NAPM)
Maj. Priyadarshi Choudhury (retd), GPF
Partha S Bhattacharyya, Former Chairman Coal India Ltd
P. Rajamanickam, General Secretary, All India Peoples Science Network (AIPSN)
R Sreedhar, Environics Trust
Rajender Ravi, People’s Resource Centre & Institute for Democracy and Sustainability
Raj Kumar Sinha – Bargi Bandh Visthapit Evam Parbhavit Sangh
Ramesh Jerai, Jharkhandis Organisation for Human Rights (JOHAR)
Ravindranath, River Basin Friends
Santi Tiriya, Jayanti Kairam, Omon Mahila Sanghatan, Noamundi, Singhbhum West, Jhakhand
Sabayasakshshi Chatterjee, Former President, All India Peoples Science Network (AIPSN)
Shabnam Hashmi, Social Activist
Shweta, Society for Rural Urban and Tribal Initiative (SHRUTI)
Soumya Dutta, Bharat Jan Vigyan Jatha
Surajit Mazumdar, Professor, CESP/SSS, Jawaharlal Nehru University
Sushil Khanna, Professor (Retd.) of Economics and Strategic Management, IIM Calcutta
Thomas Franco, Former General Secretary, All India Bank Officers Confederation & Joint Convener, People First
T Senthilkumar, Former Secretary, All India State Bank Officers Federation
Yash Marwah, Climate Change Campaigner