With Reliance Payment Bank, a joint venture between Reliance Industries Limited and SBI, set to begin operations in December, there is widespread concern that the new venture will cause the downslide of the country’s largest public sector bank. By PURNIMA S. TRIPATHI

IS it the beginning of the end for State Bank of India (SBI)? Is the country’s largest public sector bank being pushed on a downward journey that could eventually lead to its demise?

State Bank of India is the only Indian bank to figure in the list of the world’s top 50 banks and the only one to be listed in Fortune 500. It is widely known as the banker of the nation and has 23,566 branches in the country, of which 15,037 are in rural and semi-urban areas. SBI has 189 international offices in 35 countries. As of September 30, 2014, the bank had approximately 225 million active customer accounts, and deposits, net advances and a total assets base of Rs.14,73,785 crore, Rs.12,09,648 crore and Rs.18,74,332 crore respectively. It recently acquired additional muscle by merging its five associate banks with itself, besides opening crores of new accounts under the Prime Minister’s Jan Dhan Yojana. This bank is now being gifted to Reliance Industries Limited (RIL) on a platter, ostensibly for the purpose of “banking the unbanked”.

Where is the need for such a humongous institution, which enjoys tremendous credibility with the masses since it has never ever defaulted, to partner with a corporate house like Reliance? This is the question lakhs of SBI employees across India have been asking ever since news spread that Reliance Payment Bank, in partnership with SBI, is to begin operations from December. The Reserve Bank of India (RBI) gave its final approval to RIL to start its payment bank in March 2017. RIL and 10 other entities were given the in-principle approval for starting payment banks in September 2015. The Reliance-SBI Payment Bank was incorporated on November 10, 2016, as per a letter written by RIL to the Registrar of Companies. On July 1, 2016, RIL intimated the Bombay Stock Exchange and the National Stock Exchange that it had entered into a partnership venture with SBI in which RIL would be the promoter with 70 per cent equity investment and SBI would have a 30 per cent equity stake.

Smart technology argument

The avowed objective of the government and the RBI in giving the approval to the RIL-SBI partnership was to utilise the latest technology of Reliance Jio to reach unbanked rural areas. This argument, however, does not hold water because SBI, on its own, has employed over 1,50,000 business correspondents who have been working in the remotest corners of the country. Reliance, which was appointed Corporate Business Correspondent for SBI in 2012, did not appoint a single business correspondent since it was not a profitable activity for the group then. According to SBI officers, business correspondents appointed by SBI are being asked to work for RIL, thereby giving the corporate house an established network of business correspondents. “This will give RIL an opportunity to establish its payment bank without incurring any expenses,” said a senior bank official.

Indeed, even the argument about the use of RIL’s technology to enter into the deal sounds flawed because SBI already has successful smart technology initiatives in place. For example, SBI has launched SBI Buddy, SBI Mobi Cash, SBI Anywhere, and other mobile banking facilities on its Core Banking Solutions, apart from a vast network of ATMs, giving customers a rainbow experience of banking anywhere and anytime.

G.D. Nadaf, a former general secretary of the State Bank Officers Association, who also held the post of general secretary of the All India Bank Officers Confederation, said: “Frankly speaking, there was no need for SBI to go in for this deal, especially in view of the fact that SBI is grappling with the post-merger scenario.” SBI has been grappling with manpower problems since absorbing its five subsidiaries in May. Nadaf, who has also served as a director on the SBI Board, said that before entering into a partnership that has a bearing on lakhs of employees of the bank and millions of customers, the bank management should have held wide-ranging consultations with all stakeholders. “Why has the deal been kept under wraps? The secrecy surrounding the entire exercise makes it suspect,” he said.

According to Thomas D. Franco, general secretary of the State Bank Officers Association (Chennai circle) and of the All India Bank Officers Confederation, RIL has a reputation for bribing, manipulating and arm-twisting bureaucrats and politicians to get its work done. The company has even broken laws without compunction to serve its business interests. He cited several instances, Public Accounts Committee (PAC) and Comptroller and Auditor General of India (CAG) reports and even criminal charges and convictions of its senior executives, to prove his point.

In the 2G spectrum scam, Reliance Telecom was charged with criminal conspiracy to cause criminal breach of trust by a public servant, criminal conspiracy under Section 120B, cheating under Section 420 and forgery under Sections 468 and 471 of the Indian Penal Code. Reliance Telecom was booked under the Prevention of Corruption Act, 1988, and individual charges were framed against three of its senior corporate executives: Gautam Doshi, Surendra Pipara and Hari Nayar, which resulted in their arrests. In late 2007, the Securities and Exchange Board of India (SEBI) said that Reliance and the 12 unlisted trading houses it used had carried out unlawful transactions of the shares of its former unit, Reliance Petroleum Limited. SEBI ordered the companies to return gains worth Rs.447 crore with interest.

The five main allegations against the company were that Reliance used fake shares; it switched shares sent for transfers to make illegal profits; it indulged in insider trading in shares; it established a nexus with Unit Trust of India (UTI) to raise huge sums of money to the detriment of UTI subscribers; and it attempted to monopolise the private telecom services market through front companies.

As recently as May 2014, Oil and Natural Gas Corporation (ONGC) moved the Delhi High Court accusing RIL of pilfering 18 billion cubic metres from its gas-producing block in the Krishna Godavari basin. Subsequently, the two companies agreed to form an independent expert panel to probe pilferage.

RBI guidelines stipulate that payment bank promoters should be fit and proper, which can be construed as being financially strong and with ethical values, criteria which many believe RIL fails to meet. The Reliance Group has had a chequered history since the days of its founder, Dhirubhai Ambani. The irony is that the country’s biggest loan defaulter has been presented with the country’s largest public sector bank, along with its entire technology innovations, vast network of manpower and resources.

In what is now popularly known as the NPA (non-performing asset) scam in India, it is said that NPAs of public sector banks total roughly Rs.3.04 lakh crore, mainly on account of 10 large corporate houses. The government has refused to declare the names of these defaulters despite the Supreme Court’s order seeking their names. According to a report of Credit Suisse in October 2015 (it could not be verified independently), its study found that until March 2015, RIL owed a whopping Rs.1.25 lakh crore to banks, followed by Anil Agarwal’s Vedanta Group which had a loan default of Rs.1.03 lakh crore.

The other defaulters listed in the report are the Adani Group, with interests in energy, logistics and agrobusiness (Rs.96,031 crore); the Essar Group, active in services, steel and other sectors (Rs.1.01 lakh crore); the GVK Group, active in energy, hospitality, infrastructure and life sciences (Rs.33,933 crore); the Videocon Group headed by Venugopal Dhoot, with interest in TV and d2h services (Rs.45,405 crore); the Lanco Group, active in power and construction sectors (Rs.47,102 crore); the GMR Group, which built the T3 terminal at Indira Gandhi International Airport in Delhi at a cost of Rs.12,850 crore (Rs.47,976 crore); the JSW Group, the steel giant led by Sajjan Jindal (Rs.58,171 crore); and the Jaypee Group, the real estate company (Rs.75,163 crore).

Revenue forgone

Commenting on the NPA scam, Shashi Kant Sharma, former Comptroller and Auditor General of India, said it would be almost impossible to get the money back because a large part of it had been transferred abroad. There are allegations that the government has been secretly writing off these loans and justifying it by giving it fancy names such as “Revenue Forgone”. In a reply given by Union Minister Santosh Gangwar in the Rajya Sabha on August 2, 2016, Revenue Forgone in 2015-16 was a whopping Rs.6.11 lakh crore. His statement revealed that corporate companies, on an average, got a tax waiver of Rs.5.32 lakh crore every year.

Given this track record of top corporate companies and given the fact that RIL is the top defaulter of public sector banks (even though the government does not admit it), why is the government keen on allowing the largest and the most trusted public sector bank to partner with Reliance? “What this essentially means is that without spending a penny, Reliance Industries will get the banking muscle of SBI while SBI will end up a loser. It will be engaged in low revenue-yielding operations of the payment bank and its vast network of business correspondents will be engaged in selling the products of the Reliance group such as Reliance Mutual Fund, Reliance General Insurance and Reliance Life Insurance, which will make a dent into SBI’s earnings because SBI has similar products. We cannot understand how SBI stands to gain by partnering with the Reliance group,” Franco said. He has written to the RBI to revoke the licence, but in vain.

Given the benefits, the Reliance Group is obviously upbeat. It had initially planned to launch the bank in October and even publish advertisements. The RBI raised certain objections and the proposed rollout was stalled. Although informed sources said that the payments bank would go on the floor in December, top Reliance executives were tight-lipped about it. “You know how finicky the RBI is about these things. So, we are not saying anything about when the bank will start operations. But we are ready, and the moment the RBI gives us the final approval, we will roll it out,” a senior Reliance executive told Frontline over telephone. He said that with the country’s largest corporate group and the largest bank joining hands, the banking scenario would be transformed for all times to come just like the mobile segment underwent a tectonic shift.

Franco and other banking industry leaders are worried, especially in view of the fact that the Financial Resolution and Deposit Insurance Bill is likely to be passed in the coming weeks. The Bill is expected to put banking institutions under the direct control of the Finance Ministry. Once this Bill is enacted, SBI, which has already been designated as a Systemically Important Financial Institution, will be under the microscopic scrutiny of the government and any concerns about its financial health or performance will make it liable for liquidation, merger or acquisition by another entity.

“The coincidence of the Bill now becoming a law and the RIL-SBI partnership bank coming into existence is ominous. We demand that the government revoke the licence given to RIL,” said Franco. The Reliance executive dismissed these apprehensions, saying that the digital banking space had room for all, but the concerns remain. The SBI management needs to take its personnel into its confidence about the impact of its partnership with Reliance.