Legitimate robbery

I was studying the way presently Banks are reducing interest rates on the fixed deposits and for that came in contact with quite a few people connected with Banking. Most of them are working in some or the other Bank in position and so what they said can not be ruled out as nonsense! I got a variety of explanations for this policy of the Reserve Bank of India to instruct nationalized Banks to reduce interest rates of the Fixed Deposits. Here I am listing all of them and through them would try to evaluate the qualitative value of this policy. I am of the opinion that Purchasing power (PP) of the middle class depends upon this interest rate and so these rates must be maintained at the optimum level so that we can avoid recession in this country. As we have seen in one of my previous articles that interest rates up to 9.5 go in purchasing essentials and any extra interest helps improve purchasing power of the middle class so that they begin to purchase non-essential goods and this helps improve the industry. As industry improves employment potential grows and that keeps on adding to the prosperity of the society. This phenomenon has been observed by many economists and they have mentioned it in their books also. Interesting enough, we do not have any official explanation for why policy of reducing interest rates while it is very clear that such a policy will encourage forces leading to recession and not boom!

I have taken care to enlist all possible reasons behind this suspicious policy of reducing rates. The question is why this policy of reducing rates is being encouraged.

One officer from State Bank told me that even though my protest for reduction in interest rate on FD is correct; the experience is that in spite of this reduction people are coming to open more and more FD with these Banks. And so the management feels that people are happy with the reduced rates and we go on reducing rates more in the future! This reply was indeed disturbing to me and so I went on asking many people who have opened FDs in these Banks. What they say we shall see.

Most of them told me that they feel that even though this reduction in rates is not appreciated, one thing they feel more important and that is the money is safe! They told me these banks are not likely to go bankrupt and so their money is protected! They admitted that these banks are taking disadvantage of people’s helplessness and it is in no way justified but when they see so many banks going bankrupt one feels it is better get less but the principal amount is at least safe! This finally showed to me that people are not accepting the way these banks are looting the depositors under the circumstance and if they find that other banks giving good interest rate are equally safe they will want to shift their investments from these banks to those better paying banks.

Many remarked that the government has taken all care to improve GDP by this economic policy but has neglected PP side of the program! If PP is not matching GDP the economic package will definitely fail. Can the government care to explain where in this policy of economic growth PP is addressed?

Second explanation came from other officer; he told me that banks are supposed to develop reserve funds in case of default by borrowers. And that reserve fund is created by reducing interest rate on the FDs. Previously such reserve funds were developed by increasing interest rate on borrowers but as the policy is to give loans to various borrowers at reduced rates, naturally banks have no choice but to reduce interest on the FDs. At any level banks always want to play safe and so the most unsecured section of society namely depositors are victimized. This section does not have proper protection from any quarter and so this section of society can be victimized safely and that is the policy of present day Reserve Bank.

Now here we find a discrepancy in the policy of our government. Let us study that. Depositors in FD/ac are not having any right to demand proper interest from the bank and he is cornered by criminal minded bank management. Some banks having awareness of social responsibility such as Saraswat Co-op Bank are exceptions in point. But other banks such as State Bank, ICICI, HDFC and many more are quick in taking disadvantage of the helplessness of the depositors; worst part is that the tradition of the Reserve Bank of India of protecting interests of the depositors is no more. Now Reserve Bank is interested in looting small depositors for the benefit of politicians and their friends. This new policy of encouraging these deceitful people in the name of development is most pathetic. I feel we must change the name of “Reserve Bank” to “Bank of robbers”! If the government wants to file a defamation case against me for this; I am ready for that. I shall make World Bank also party in that because this Bank is interfering too much in our internal affairs. That case would provide me with a platform to open up many issues of injustice to account holders in the Bank. If not then, it will mean that government has accepted my accusation.

Method to cheat

How Reserve Bank wants to help these politicians was explained to me by one senior level officer from that bank. The process is very simple and it is perfectly legitimate! The party to be favored opens a company (bogus) and applies for a loan of very big amount, probably in crores. Bank sanctions the loan and the party takes away all the money from the bank. After some time as per the norms enquiry is made and the borrower is found to be a defaulter. In due course, the loan is written off silently and reserve funds are used to compensate! That’s all! They say that party’s WIKAS (Development) is done! Above mentioned big banks like State Bank, ICICI, HDFC, Panjab, Oriental are all joined in the racket. In recent election many people helped the congress party and they came in power, now they must be compensated for the work they have done for the party and so this method is used with consent of the Reserve Bank governor. Reserve Bank says, “We are doing WIKAS of people who helped Sonia Congress by making them rich in no time!” of course, at the expense of small depositors. There is a saying in Marathi, “when fence eats the farm who can protect it?” for all these years Reserve Bank served honestly as the protector of the small depositors but now under the great economist from Oxford, things have changed. The protector has become the predator.

What to do?

I asked this question to most of them and the answer was very simple, they suggested that please do not put your savings in these listed banks who are joined the racket. The problem is not so simple as we think since Reserve Bank is the main culprit we are not sure as to how long other honest banks can remain out of this racket. Present governor of the bank is a deceitful and perfectly criminal minded fellow from the way he talks.

An NGO can take up the matter and come forward to demand explanation from the Reserve Bank for undue reduction in the interest rates on FDs. If an inquiry is commissioned, Reserve Bank will have to stop this mischief. I request all like minded blogs from this network to join in the campaign to demand from the Reserve Bank explanation for this arbitrary reduction in the interest on FDs. If need be they can give link to my blog.

Actually a competition should be set amongst the banks for giving maximum interest to FDs and if that is done small people like you and me will have more money in their hand and that will improve the PPP (purchase power parity) against GDP of the country. According to my findings maximum up to 12% can be given for deposit for 1000 days. If this is done and conspiracy, of the Reserve Bank to oblige favored one by writing off the loan, is busted the country will benefit.

Importantly one thing our ministry side lines that if low interest loans are provided and production is made who will buy the product? USA has done this mistake and we are going to double it! We must learn from the mistakes of other countries. We take tips from a country who has failed in its program for rapid growth. When we plan to make production we must simultaneously plan to create customers for that product otherwise industry shall suffer due to lack of customers and recession will be set in; by allowing high interest rates to FDs we do that exact thing, create buyers for the produce! USA offered predatory loans to solve this problem but it has rebounded on that country. People who have taken loans did not pay the dues. Most of the banks have been in deep trouble there and even so after seeing all this chaos if our government is going to do the same mistake only God may save us! At present in USA credit card loans are exceeding 1000 billion and Barrack Obama finds it difficult to solve that labyrinth. Credit Cards are a type of predatory loans. Simple rule says, PP (Purchasing Power) of the man shows his credibility and one who has no PP has no credibility! This is the reason why Credit Cards have cost Banks all over the world losses.

Who will come?

Similar racket is seen in share market where share holders are denied exact dividend and distribution of bonus shares. Who will come forward to advocate for the justice for these two most unprotected sections of the economic society namely, bank depositors and share holders? I suggest to media that they please monitor all the big loans sanctioned by these banks; and then how many loans are written off that will give a clear picture.

If government wants to help certain section of society or industry then it should gave subsidy on their loans, in it’s own capacity and not victimize small depositors. Banks should charge the same interest rate and the government shall bear the difference. This will be more like gentlemen’s work. Reserve Bank ordering other banks to arbitrarily off the cuff reduce interest rates is amounting to nothing short of robbery. If government wants to rob small depositors where shall that section of society look for protection? I want government to explain as to what right has government to play with the private money of depositors. How can government demand to reduce the interest rates which are the right of the depositors? Where is the sense of responsibility in this act? Why government is not giving subsidy on loans at its own cost? If government has answers to these questions they should be made public by the finance department. When loans are given against pledge or guarantor possibility of default is minimized and so that manner should not be waved in the name of giving impetus to economy and fast growth.

Many years ago Indira Gandhi nationalized big banks to offer loans to develop creditability in non creditable people but that experiment did not work and the reason for that is simple, creditability can not be developed into any body by giving free money; if that was possible all beggars would have become credit worthy and there would not be any beggars in the society but that does not happen that way. After all, the loans must be paid with interest and that is not possible for this section of people, in US people were given loans without pledging and all those loans were defaulted. What I mean to say is that, artificially we can not bring creditability in people by just giving away money of one section of people to others. Such loans have developed disrespect for bank loans and people take all such loans very lightly. This sets in a bad reaction which is dangerous to our economy. Nationalization of Banks was a criminal act on the part of that government but unfortunately nobody challenged it at that time.

In Bangladesh small credits were given and that was successful here we see the difference in the situation. They were small loans, for direct craftsmen and self employed labors, and monitored by responsible NGO. The amounts involved were so small that they were manageable. We can not take that as an example to justify large loans in the same fashion. Our banks do not have provision by which they can monitor functioning of loans they give.

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