Swadeshi Jagran Manch describes itself as a political and cultural organization. Its interest in the central bank's functioning may be more than just circumstantial.
Swadeshi Jagran Manch - we’ve heard this name over the years and pictured a fringe far right group - usually as a consequence of them spouting statements that were pretty...far out, to put it politely.
For instance, their latest statement:
According to a Moneycontrol report, the Swadeshi Jagran Manch, what most consider the economic wing of the Rashtriya Sawyamsevak Sangh, or the RSS, wants newly-appointed RBI Governor Shaktikanta Das to overhaul the country's private bank ownership norms to help the growth of large home-grown banks. As you must have read in the news, Das was a Economic Affairs Secretary in the finance ministry. He took over as the 25th RBI governor on December 12, replacing Urjit Patel who resigned on December 10.
“There is a need for the new RBI Governor to rethink the regulatory framework for private bank ownership,” the SJM said in a note of an internal meeting on Future of Banks in India.
SJM former co-convener S Gurumurthy is a part-time director of the Reserve Bank. So, them having strident opinions on economic issues is probably a cause for concern for citizens of a more free-market bent of mind. For the record, Gurumurthy has written disapprovingly more than once regarding globalization.That’s the Swadeshi angle.
What is the Swadeshi Jagran Manch's interest in the affairs of the RBI? That is what we will discuss on our Pick of the Day today right here on Moneycontrol.
Urjit Patel resigned nine months before his tenure was to expire in September 2019, ending a testy relationship with the finance ministry. The RBI’s central board met today amid tensions between the Finance Ministry and RBI. Shaktikanta Das chaired the meeting.
SJM’s push for Swadeshi is nothing new, of course. For one, it’s right there in the name. Business Standard reported that, according to an official who has known him for more than three decades and is aware of the RBI board’s discussions, at the October and November board meetings, Gurumurthy pressed members to do more for smaller enterprises.
Indeed, the bank's statement after its last policy meeting on Nov. 19 said it would "ease liquidity for the financial sector and increase credit to small businesses.” Gurumurthy's presence in the central bank is being seen, as per the Business Standard, by Hindu right wing as a victory in their quest to rid the RBI and the government of "foreign" elements.
But his presence in the RBI also worries some investors and analysts,who fear that the RBI's independence could be, maybe has already been, compromised. In a speech last month - his first since joining the board - Gurumurthy said globalisation had become "irrelevant", but praised Donald Trump for his protectionist trade policies.
Regarding the current statement from the SJM, convener Ashwani Mahajan said, “None of us want Indian home-grown banks be allowed into the hands of foreign players. SJM is also of the view that promoters' ownership cap should be reexamined.” But this statement seems a bit off in its timing. Changes in private banking industry rules are unlikely to be taken up in the RBI central board meeting.
In any case, India regulates banking through a cap on voting rights (defined in the Banking Regulation Act), and through ownership caps (through RBI's administrative circulars). RBI's banking guidelines state that promoters' holding in banks should progressively reduce to 15 percent within 15 years of starting operations, a subject we’ve covered extensively in previous podcasts.
The rationale behind such an approach is that diverse ownership would lead to better governance through lack of concentration of power in the bank. Promoter voting rights are capped, implying that the promoter group cannot control the board or push through decisions just because it enjoys greater shareholding.
However, Mahajan, speaking to Hindu BusinessLine, said, “Currently, foreign ownership in private banks is allowed to go up to 74 percent. In some private banks, FIIs have already reached almost 74 percent. We want the RBI to now bring the foreign cap to below 51 percent and ensure only Indian control of private banks.”
Mahajan insisted that the new RBI Governor must review the ownership and control policy for banks, and create an environment that motivates high-quality Indian entrepreneurs to come forward and build great banks. He urged the new Governor to also try and develop an understanding on the implementation risk of Basel III norms in the present context and IFRS challenge.
But, as Moneycontrol noted, the RBI's rules on cutting promoter holding in private banks is predicated upon the principle that concentrated ownership can lead to greater governance risks. The instances of Kotak Mahindra Bank and Bandhan Bank show that RBI will not show any leniency in diluting rules on the concentrated ownership.
Consider this: The RBI's bank licensing rules mandate that a private bank's promoter will need to pare its holding to 40 percent within three years, 20 percent within 10 years and to 15 percent within 15 years. In September, Bandhan Bank, one of India's newest full-fledged private commercial bank, informed stock exchanges that RBI had ordered the freezing of its CEO Chandra Shekhar Ghosh's salary and barred it from opening new branches without the central bank's approval.
The bank failed to reduce the promoter's shareholding to 40 percent by August 23, the day it completed three years of operation. Kotak Bank informed stock exchanges about the RBI's rejection of its proposal to issue perpetual non-cumulative preference shares (PNCPS) to cut promoter holding.
The RBI asked the bank to trim promoter shareholding to 20 percent of paid up capital by December 31 and 15 percent by March 31, 2020. Vice Chairman and MD of Kotak Mahindra Bank, Uday Kotak, currently holds a 30.03 percent stake in the bank. The PNPCS issue was part of Kotak's plan to pare his holding and meet the December 2018 deadline.
SJM, however, called for a change in RBI's diversified ownership norms, arguing that on most occasions private bank promoters end diluting their shareholding in favour of foreign investors who are now majority owners of many Indian private banks. The organization said foreign ownership is high in Indian banks: HDFC - 72 percent, ICICI Bank- 60 percent, Axis Bank - 52 percent, IndusInd Bank - 73 percent and Kotak Bank - 47 percent.
SJM’s fear of the “foreign hand” is palpable. Sample this: “Is diversified ownership really diversified? Effectively, decisions of foreign investors is influenced and controlled by proxy foreign advisors...It is important for an alignment of a bank with its country's objectives- such alignment starts from a deep-rooted passion for nation building and which has a long -term vision. Such passion and dedication are typical of entrepreneurs who are domestic.”
But what is the thrust of SJM’s argument? According to them, India does not have mature institutions / funds with deeper pockets to take up equities in large proportions in banks. Therefore, the forced equity dilution norms is pushing banks to go abroad. SJM also urged the RBI to rethink its current stance of stipulating capital norms higher than those prescribed under Basel III. Mahajan said, “At present, making it even more stringent than the global norms is uncalled for.”
What is the Swadeshi Jagran Manch all about?
Well, they’re about Swadeshi, and anti-imperialism. For most of us, that sounds like an outmoded trope, a breeding ground for kooky conspiracy theories. Not for the gentlemen at SJM. Earlier this year, they demanded a probe into foreign NGOs with regard to vaccines - including prominent ones like the Bill and Melinda Gates Foundation - because they were promoting pharma companies manufacturing contentious vaccines.
They accused the Congress of backing pharma lobbyists. Then there was the time they slammed what they termed as Walmart’s “back-door” entry into the Indian market. They claimed they were preparing a report on “alternative ways” to revive Air India! They also urged Prime MInister Narendra Modi to ensure a course correction in NITI Aayog. I’ll give them this much - they are ambitious and consistent, but they’re also always provocative and interesting. Far out, like I said.
Swadeshi Jagran Manch describes itself as a political and cultural organization. This is how their official website describes their early days: On the birth anniversary of Swami Vivekanand, 12 January 1992 the struggle against the economic imperialism began in the form of mass awareness programme. In this campaign the changes in the economic policies, devaluation of rupee and interference of external powers in the policy-making decisions and their collective harmful impacts on Indian economy were exposed to the public.
Speaking about colonialism, Gurumurthy has said, “Colonisation lasted for 200 years. Now it's abused as one of the worst happenings in the history of world. It dominated the world, our minds, it left its imprint. Even today we suffer from hangovers of colonisation. The colonisers feel guilty about colonisation. But the colonised people are not feeling sad that they were colonised. They revel in things which colonisers left. It is a paradoxical phenomenon.”
Talk about a sweeping generalization about “colonised people.” But wait, are these guys also against the 1991 reforms that changed India, a process that India undertook after being advised by the World Bank and the IMF? No, not Ethan Hunt.
The other IMF - the International Monetary Fund. Though one would think it was pretty much Mission:Impossible to achieve economic reforms in the India of the 1990s. The word imperialism made grown men do and say funny things back then. But, in 2018, one cannot help but feel that SJM is a product of a bygone era that’s struggling to keep pace with the modern world.
The reason for that brief sojourn into the origins of the Swadeshi Jagran Manch is to help understand the driving compulsion of this politically right-but-economically left organisation. Gurumurthy’s rise to prominence came courtesy of his reportage on alleged corruption in Reliance Industries. He had the backing of Ramnath Goenka, which is a pretty impressive endorsement. But, as mentioned, he has spoken against globalization and praised Trump for protectionist policies.
Further, Gurumurthy insists him and Patel were never at loggerheads. He told The Economic Times, “The reports about this ‘sword fighting’ within the board are not right. It was precisely for this reason that the RBI came out with a statement for the first time after the last meeting because it was deemed important by the governor to clear the atmosphere.” Following Patel’s resignation, he tweeted, “...a shock, particularly after the cordial board meeting". His resignation is indeed setback to the efforts of convergence of views that was taking place. We will miss him.” Hmm. Indeed. However, SJM called Patel’s exit, “a good sign for MSMEs and banks".
Gurumurthy’s presence in the RBI board, and his proximity to the government is also making some analysts nervous. Shilan Shah, an economist at Capital Economics in Singapore, which advises foreign funds, said, “It's not being viewed particularly positively. He has been a pretty staunch critic of the RBI and he has got government interests at heart, which support growth before an election.”And this concern may not be completely unwarranted. Mahajan has said that the RBI board was not a rubber stamp “anymore" and that the RBI has to convince the board about the rationale behind its decisions. He explained, "Larger-than-life figures appointed to head regulatory bodies need to understand that systems in India and America work differently.” I wonder whom that is a dig at?