You must have come across the audio and video clips of Finance Minister Nirmala Sitharaman giving vent to her frustrations at Rajnish Kumar, the boss of the nation’s largest lender, the State Bank of India (SBI), and calling the “bank for every Indian” “heartless” and “inefficient”.
She purportedly made these comments at a closed-door meeting at the Khanapara exhibition ground in Guwahati on February 27. Besides public sector bankers, finance minister of Assam Himanta Biswa Sarma and the bureaucrats of the department of financial services were present in the camp organised by the SBI for reviewing the progress of financial inclusion in the northeastern states.
If you watch the video (which has been put up on YouTube) or listen to the audio clip, you will find the finance minister was upset over the fact that some 250,000 bank accounts of tea garden workers in Assam have not been operating, leading to difficulties in the implementation of the government’s direct benefit transfer scheme for these workers.
After this meeting, the finance minister at a press conference announced that the issues faced by the tea garden workers on account of ineffective accounts were being sorted out.
Going by media reports, some 800,000 accounts had been opened for tea garden workers but 30 per cent of these were not operational because of know your customer or KYC compliance issues.
The All India Bank Officers’ Confederation issued a statement, expressing its “deep anguish” and resentment at the treatment of the SBI chairman in an “unfair manner” but later withdrew it, adding to the confusion. The reason for the withdrawal? The lack of clarity about the sequence of the events.
Assam’s finance minister, through a series of tweets, had said the tea garden workers had been deprived of banking services for the last seven decades due to procedural lapses and blamed local banking officials for lack of alertness. Marginalised workers, according to him, have not been able to access the Rs 5,000 transferred to their bank accounts by the state government.
The crux of the matter is that these tea garden workers did not meet a bank’s KYC norms. What are these norms? Who is responsible for this mess? The SBI heads the so-called state-level bankers’ committee (SLBC) in Assam, a coordinating body for all banking services in a state. By being the largest lender with a little over 20 per cent market share of the banking assets in India, SBI heads many of the SLBCs in states. Even where another bank is heading the SLBC, the SBI plays a key role. Jammu and Kashmir and Tripura are examples.
Before we seek the answers, let’s take a close look at the banking landscape in the northeast and how it is evolving. In March 2015, the northeastern states had 3,345 bank branches with public sector banks (PSBs), including SBI, owning 2,239 branches. By December 2019, the branch network had grown to 4,544, and that of PSBs to 2,346, led by the SBI (802).
The number of ATMs is 5,727 now. The PSBs have 4,729, of which SBI alone has 3,296.
The number of deposit accounts, which were 38.4 million (PSBs 26.6 million) in March 2015 rose to 56.4 million in March 2019 (the latest data I could lay my hands on), with PSBs having 38.3 million deposit accounts. The money kept with such accounts rose from Rs 1.55 trillion to Rs 2.43 trillion during this period.
The number of credit accounts more than doubled from 33 million in March 2015 to 64 million in March 2019. The outstanding credit portfolio of the banks in this region almost doubled from Rs 0.54 trillion to Rs 1.02 trillion during this period.
In March 2019, the PSBs’ share in the deposit portfolio was 76.2 per cent (SBI’s 43.9 per cent). In the credit portfolio, the PSBs’ share was 67.1 per cent (SBI’s was 37.3 per cent). The so-called credit-deposit ratio (or how much credit is given for every Rs 100 deposits collected) has risen from 34.5 per cent in March 2015 to 41.9 per cent in March 2019.
When it comes to the Jan Dhan accounts, the main driver of financial inclusion in recent times, as on March 4, 2020, there have been 382.3 million bank accounts, keeping Rs 1.17 trillion. Comparable figures for the northeast are 19.65 million accounts and Rs 5,130 crore deposits.
The RBI’s master direction on know your customer (dated February 25, 2016) and last updated on January 9, 2020, outlines the requirements for KYC. The norms are based on the Prevention of Money-Laundering (Maintenance of Records) Rules 2005 of the central government.
Shorn of legalese, Rule 9(5) says small accounts shall remain initially operational for 12 months and, after that, they can be operational for another 12 months if the holder of such an account provides evidence before the banking company of having applied for any of the officially valid documents or OVD.
Under Rule 2(d), the list of OVD includes passport, driving licence, Aadhaar card, voter identity card issued by the central government, a job card issued by the national rural employment guarantee scheme and signed by a state government official, and a letter issued by the National Population Registrar with all the details.
Instead of blaming the banks, the Assam state administration could have ensured the OVDs for the tea garden workers in the past two years. A section of the tea garden workers in Upper Assam have already been under stress, grappling with loads of small loans that they are not able to pay back on time. It has been a double whammy for them. The northeast is not an easy region for bankers to operate. There have been cases of extortion, kidnapping and laundering of money, using ghost accounts. Will any bank be eager to take on responsibility of regularising such accounts without OVDs?
What is the way forward? The money laundering rules have a provision for a “review” of such accounts. The central government can offer relaxations and under Rule 11, its decision is final. Banks would have no excuse after that is done.
One issue still foxes me: Who recorded the private meeting of bankers with the FM and made it public? The SBI has filed an FIR with the Guwahati police for unauthorised recording. Let’s wait…
The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd.