The UCO Bank Story - Saving Socialism from the Socialists - Vivek Kaul's Diary
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The UCO Bank Story - Saving Socialism from the Socialists

Jan 14, 2019

Vivek Kaul

Over the last few years, the government has spent a lot of money in keeping public sector banks, going. Many public sector banks have seen a huge pile-up of bad loans. Bad loans are loans which haven't been repaid over a period of 90 days or more.

In order to keep these banks going, the government has regularly invested money into these banks as capital. This has created its own set of issues. Let's look at them pointwise.

1) Between April 1, 2013 and December 31, 2018, the government had invested a total of Rs 2,16,900 crore, as capital into public sector banks. Of course, all this is money which could have easily gone somewhere else. But given that the government owns a bulk of the banks in India, it had to keep them going, and not cause a financial crisis. Hence, to that extent, the recapitalisation of the public sector banks is justifiable to some extent.

2) If we look at the individual banks, since April 2013, the government has invested the most money into Bank of India. It has invested a total of Rs 26,761 crore as capital into the bank. Bank of India is one of the big public sector banks with total assets amounting to Rs 6,09,575 crore, as on March 31, 2018.

State Bank of India comes in next, with the government investing Rs 24,844 crore as capital into the bank. The State Bank of India is the largest bank in the country. It had total assets of Rs 34,54,752 crore, as on March 31, 2018. The bank forms a little over a third of the public sector banking in the country.

Given the size of these banks, the government recapitalising them, cannot really contested.

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3) Nevertheless, when we look at the total amount of capital a bank got compared to its size, the UCO Bank comes in at the top. Since April 2013, a total of Rs 14,446 crore has been invested by the government into the bank, to keep it going. The total assets of the bank are around 6.3% of the total assets of the State Bank of India, but the bank has seen an investment of capital amounting to around 58.2% of the capital that has been invested in India's largest bank.

The Bank of Maharashtra comes in next with Rs 9,753 crore having been invested in the bank as capital to keep it going. The total assets of the bank are around 4.5% of the total assets of the State Bank of India, but the bank has seen an investment of capital amounting to around 39.2% of the capital that has been invested in India's largest bank.

There is clearly a problem here, with so much money being pumped into what are really small banks.

4) This is the kind of socialism which Indian governments excel in; the socialism of the well-off. Who does this socialism benefit? It benefits the few thousand employees of the bank. As on March 31, 2018, the UCO Bank had a total of 23,943 employees. The Bank of Maharashtra had 12,932 employees. This means that because 36,865 employees can have some nuisance value, these banks are kept going and public money is invested in these banks, over and over again.

The UCO Bank and the Bank of Maharashtra are so small that if they were to be gradually shut down over a period of time, it wouldn't create any credit shortage for the nation as a whole. Also, the rate at which the private banks are growing, they will easily move in, and fill any credit gaps (if you look at lending data that is happening anyway).

5) A total of Rs 24,199 crore has been invested as capital by the government into the Bank of Maharashtra and the UCO Bank. In fact, we are considering just two banks here. The general trend is that the smaller and the medium banks, have needed more capital from the government over the years, to keep them going. This stems from the inherent need of the government to keep owning 21 public sector banks. It's only fair to ask why does the Indian government need to own 21 public sector banks?

6) The Rs 24,199 crore that has gone into the Bank of Maharashtra and the UCO Bank, could have easily gone somewhere else. Like where? Let's take a look at the huge number of vacancies across higher education in India.

In a recent answer to a question raised in the Lok Sabha, the government said: "The total number of sanctioned teaching posts in 40 Central Universities is 17092 and out of these, 5606 teaching posts are lying vacant as on 1.4.2018. In Indira Gandhi National Open University (IGNOU), out of 454 teaching posts, 190 posts are vacant as on 31.7.2018."

Hence, nearly a third of teaching posts in central universities are empty.

A similar situation prevails across the Indian Institutes of Technologies. As the government recently said in reply to a question raised in the Lok Sabha: "At present, there are 23 Indian Institutes of Technology (IITs) functioning in various parts of the country. IITs strive to maintain a faculty student ratio of 1:10... As on date, the sanctioned strength of faculty in all the 23 IITs is 8856, against which, 6043 faculty are in position and 2813 are vacant."

Again as is the case with central universities, almost a third of faculty posts at the IITs are currently vacant.

7) As I keep saying, there are no free lunches in economics. Every job that the government saves in public sector banks by continuing to invest money in them, it ends up not recruiting enough people in some other area. In this case, I have offered the example of higher education, where nearly a third of the teaching posts, are vacant.

What is more important? Ensuring that the government continues to own 21 public sector banks? Or making sure that the bright young Indians who qualify for the IITs and India's best central universities, get good education? To me this is a no-brainer.

But in India we believe in socialism for the well-off. Hence, our priorities are all wrong.

8) Between April and December 2018, the government has invested Rs 51,533 crore as capital into public sector banks. The target for 2018-2019 is Rs 1,06,000 crore. Hence, Rs 54,467 crore, still remains to be invested. One-half of the socialism for the year, when it comes to public sector banks, has been done. The second-half half remains.

If India needs to progress, we need to save socialism in the country from the socialists (read politicians and everyone else who benefits from it). Else, we will keep making the mistakes that we always have.

Regards,

Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul Publishing

PS: Now you can follow Vivek Kaul on Social Media and get Vivek's updates on the critical issues affecting the economy and your wallet... as they happen. Follow Vivek on Facebook, Twitter, and Google+.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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4 Responses to "The UCO Bank Story - Saving Socialism from the Socialists"

thiruvalluvan

Jan 14, 2019

The government is giving money to banks not for saving its employees. it is giving money so that the capitalists who stole the money from bank are not made open by the bank to the public. The government serves its maliks( capitalists) by collecting money from the public ( by the government) through the its servants ( bank employees) so that again the maliks can get more money to loot.

Like (2)

s.k.limaye

Jan 14, 2019

VERY INFORMATIVE.

Like (2)

Ganapathy Sastri

Jan 14, 2019

In the west, e banking ( banks without branches) is spreading. Existing banks ( even major ones) are reducing their number of employees and shutting down branches. I personally, hardly visit any bank in India these days and I don't represent the young. You can expect similar trends in Indian banking. The kodak moment for Indian banks is coming. Government needs to see the writing on the wall and be prepared to phase out the banks. In the meanwhile, government's message to banks should be STOP LENDING. The only thing that is guaranteed, when PSU banks lend ( since 1969) is BAD DEBTS of at least 10%. That means they need to earn income from 90 and beat the expenses on 100 + salary + rent and other expenses. No wonder they have been unable to do that. PSU banks do not have HONESTY nor EFFICIENCY - two traits that you look for in every individual, politician, company, businessman. Unfortunately, historically, Indians have lacked these. That is why they have been repeatedly losing to foreigners the last 1000 years.

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Vishal Vora

Jan 14, 2019

While I agree with the analysis govt needs UCO bank to buy oil from Iran. That is it's competitive edge over others.

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