RBI's idea of allowing private companies to set up local banks will prove to be a blunder and lead the country back to pre nationalization era.. Already thousands of Non Banking Finance Companies (NBFC) are scattered all over the country like post offices and they are almost beyond the control of RBI and Government of India. Every year we come to know ten or fifteen NBFC promoters have closed their office and flied away from town after cheating crores of money from innocent small villagers , traders and farmers by promising them to double their money in two or three years. Similarly cooperative banks and many regional rural banks in the country are mostly running mismanaged and their assets shown in Balance sheets are mostly irrecoverable.
If small private banks are set up in all small villages, towns and cities, more and more people will be cheated, lending will be done after keeping gold as done before nationalization of banks or credit will be disbursed only after mortgaging landed properties of farmers. Same Zamindari system and exploitation of poor by money lenders in disguise of local banks will come in operation and become the way of life as was prevalent before Nationalization of banks and before freedom of India. It is not exaggeration to say that even now small traders and farmers have to depend on local money lenders and it is also an open secret that these money lenders are charging huge interest and exploiting their poverty.
When RBI is unable to control less than thirty Public sector banks and thousands of NBFC, regional rural banks and cooperative banks already in operation and doing the same job, how can RBI imagine of controlling of additional numerous private banks. If the monitoring is not possible, allowing private companies to set up local banks will prove fatal and make the life of local poor residents more miserbale.Through this new concept of local banks RBI will do nothing but add fuel to fire. Government banks are already in mess and there is no doubt in it. Even farmers and small traders cannot dream of any relief from such local banks for whom Local banks contemplated by RBI will be set up by private companies.
It is to be kept in mind that government can waive loans disbursed by government banks, but cannot force private companies to waive agricultural loan or small loans. Obviously private companies will hold full securities and charge maximum interest from needy person and extort more and more profit as private airlines are looting air passengers keeping in mind the necessity and urgency of passenger. As such, the said idea of local banks contemplated by RBI in not going to help poverty ridden person in any way. Government is indirectly attempting to discard agenda of social inclusion and leave poor person on the mercy of local goondas and local money lenders in disguise of local banks.
Every one knows that private banks cannot allow their assets to become NPA (Non Performing Assets) and cannot depend on the current legal framework and ineffective judicial remedy for willful defaulters. They may also seek the help of recovery agents to apply force on defaulters which government cannot manage to support in our country and which was vehemently opposed by RBI itself in the recent past when private banks like ICICI or HDFC used local goondas to recover their money.
Moreover setting up of lacs of local banks as visualized by RBI and promoted by private companies is against the very concept and plan of Government of India directed towards consolidation of existing banks. It is ironical that on the one hand existing banks are advised by Finance Minister to go for merger and acquisition to reduce the number of banks and on the other RBI is advising private companies to set up local banks. There is no doubt that Government of India must ponder over the idea of RBI , invite opinion from experts and seek opinion of various political parties before putting the said dangerous idea in action.
Danendra Jain
5th Jauary 2010
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