A chain reaction is a series of related events where each event causes the next event, or a chemical reaction where each change causes another change. The Supreme Court’s decision regarding electoral bonds was just such a case. What was perhaps unexpected was the extent of the fallout that State Bank of India (SBI) would subsequently face from this event.
SBI, which bills itself as a Fortune 500 company with over 200 years of history, is often the subject of “out to lunch” jokes criticizing its slow service. This time, India’s largest bank has also shown us that there is no free lunch when the government holds more than 50 per cent of the bank’s shares.
On March 12, SBI submitted electoral bond data to the Election Commission of India (ECI) following the Supreme Court’s order, but it was not without major controversy. Earlier, SBI had asked for an extension of the data disclosure deadline till June 30, following a stern warning from the Supreme Court. The petition for extension was denied and the court made no mention of the directive. “We do not intend to invoke contempt jurisdiction at this time, but we put SBI on notice that this court may proceed with an action for willfulness.” If SBI does not follow the timeline set forth in this order, Obedience. ”
The bank’s request was to share the names of donors, their beneficiaries and amounts with ECI, which would then make the information public. However, there was confusion over the timeline and whether banks could match donor details with redemptions by political parties. SBI initially said it would take several months to share the data with courts and the ECI, but later revised that estimate to weeks and finally days.
As for matching electoral bonds to recipients, financial experts say that while banks know the donor’s name and purchase amount for electoral bonds, it is impossible to match each bond to its recipient. It pointed out. This means that banks were either deceiving or deceiving the courts in their initial response, or that they were illegally storing data about bearer bonds, which by definition have no registered owner.
However, documents shared with Reporters Collective revealed that the SBI collated data on electoral bonds within 48 hours of the expiry of redemption period, following a bid from the Union Treasury. This information, which was regularly shared with the Union Finance Ministry, showed that the SBI maintained a data trail of bonds sold and redeemed by political parties using the serial number of each bond.
Was the country’s most widely used and trusted bank lying in its response to the Supreme Court?
friends for all seasons
As for SBI, the strategy was predictable.
In March 2020, things took a turn for the worse at Yes Bank, one of India’s most prominent private sector banks. The decision, which surprised not only analysts but also the financial institution itself, led SBI to lead the rescue operation for the beleaguered Yes Bank. More than Rs 6.05 billion was injected into Yes Bank as part of the rescue package, with SBI holding over 48% stake in it.
In an interview with this columnist in November 2020, former SBI chairman Rajnish Kumar admitted that the Yes Bank merger was “as unexpected as COVID-19” for SBI. The understanding was that SBI would need to maintain at least a 26% stake in YES Bank for three years, although that stake was reduced to about 26% over time. The provision was introduced by the central bank as part of the restructuring process and reports suggest that SBI is keen to reduce its stake in Yes Bank by March 2023.
However, earlier this year, SBI issued a clarification on fresh reports regarding a share sale, reiterating that no partial or complete sale was being considered. The shotgun wedding lasted longer than Banks had hoped, but it’s clearly out of control. Besides Yes Bank, SBI has over the years organized and managed a range of small financial institutions such as State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, Bharatiya Mahila Bank, State Bank of Travancore and State Bank. I absorbed it enthusiastically. hyderabad bank. This has left in place gigantic behemoths that very often carry more burdens than they can manage.
Ironically, banks as a business have been doing well in recent years, riding a “Goldilocks” stage of strong growth and high profitability. Public sector banks appear to be in a favorable position due to steady loan growth, improved interest margins and reduction in non-performing assets. Profitability has also improved. As reported, the net profit of public sector banks crossed Rs 100 crore for the first time. 1 trillion in 2022-2023, with SBI accounting for about 50 percent of these profits. In fact, brokerage firm Bernstein downgraded SBI in a recent note, with some of the downgrade being due to the bank’s significant rating changes, with limited upside potential due to impressive gains in both earnings and stock price. I admitted that it was. Goldman Sachs echoed similar concerns, pointing to challenges in deposit growth and a problematic consumer finance landscape.
In November last year, the government was considering selling stakes in public sector banks. If he just reduces his stake in SBI to 50%, the government could get more than Rs 200 billion of his profit. 30,000 billion, and it was talked about that Union Finance Minister Nirmala Sitharaman was open to the idea of selling stakes in blue-chip public sector companies, including SBI.
Will recent events surrounding the electoral bond system inspire confidence among large investors who want to sue the government? More importantly, what should the general public make of these events and whether the banks in which they entrust their life savings are truly independent, trustworthy, and competent? .
Members and supporters of the Indian Youth Congress staged a protest in New Delhi on March 5, 2024, demanding that the SBI reveal the names of electoral bond donors.Photo courtesy: Shashi Shekhar Kashyap
Who is in charge?
SBI’s part-financial, part-government dependent model, favored by over 48 million customers, is starting to show signs of stress. The past few years have seen a series of protests from SBI’s more than 200,000 employees against pressure to shift to marketing-based activities, harsh working conditions, understaffing and broken networks. A key part of the problem lies in the government-mandated ‘surcharges’ that SBI employees are struggling to cope with. These include peddling policies like Jan Dhan Yojana and frequent loans. Melas, and move the target with exemption. All of these problems point to growing dissatisfaction with management inefficiencies and challenges far broader than those of their private sector peers.
The captains of the bank’s giant oil tankers also experienced unstable navigation. Former SBI chairman OP Bhatt was part of a six-member expert committee set up by the Supreme Court to probe allegations against the Adani Group following reports of alleged financial irregularities by US short sellers. However, the petitioners pointed out that this was a clear conflict of interest as Mr Bhatt is also the head of renewable energy company Greenco, which has commercial transactions with the Adani Group. There are also concerns about his reappointment as an independent director of Tata Motors, given the fact that he already holds director-level positions in Tata Consultancy Services and Tata Steel.
In October 2021, former SBI chairman Pratip Chaudhry was arrested in a loan fraud case related to a hotel in Jaisalmer. He was indicted in 2015 on charges that he foreclosed on hotel property in a loan settlement case and fraudulently sold it at a throwaway price. He also became a director of the company that purchased the hotel. Later, Chaudhuri was granted bail and several public sector banks came out in support of him.
“This SBI part-financial, part-government dependent model, which is preferred by over 48 million customers, is starting to show signs of stress.”
dance for the master
In the latest episode, this rather public dressing-up of SBI by the Supreme Court led to calls for the resignation of the bank’s chairman. However, this fails to recognize the deep-rooted problems. It’s not about co-opting individuals, it’s about subjugating the country’s most important institutions, in this case the largest and most widely used banks, to the power of the civil authorities.
In analyzing the Indian banking sector, what is less talked about but has been understood is the ever-present valuation gap between private and public sector banks. One is because of the agility gap over capabilities. But there are equally concerns that public sector banks are always sensitive to government pressure, as the SBI demonstrated in the electoral bond case.
Since the Supreme Court order, the SBI has been providing electoral bond data in the most disorganized and complex manner possible. Deadlines, details, and instructions are not met. And the bank removed the electoral bond documents from its website, even though months of data were still missing. Quick analysis by intrepid journalists points to the level of coercion and corruption involved. Almost like clockwork, the electoral bond system has a “before-and-after raid” nature, with raids by the Enforcement Directorate serving as precursors for companies to subsequently donate large sums to this opaque system. In many cases, donations amount to several times the profits of the company in question. It’s all happening in the country’s largest bank, which serves as an invisible and unknown repository.
Over the years, many interviewers have asked this question about this financial giant: “Can elephants dance?” It is possible, but only for the master.
Mitali Mukherjee is Director of the Journalism Program at the Reuters Institute for Journalism at the University of Oxford. She is a political and economic journalist with over 20 years of experience in television, print and digital journalism. Mitali has co-founded her two startups focused on civil society and financial literacy, and her main areas of interest are gender and climate change.
