Customers of State Bank of
India (SBI), especially in south India, are forced to ask whether SBI is headed
for bankruptcy as they find 99% of the automatic teller machines (ATMs) shut
down and all branches declining withdrawals from the depositors’ savings
account beyond a limit. Bank branches are refusing to honour cheques drawn on
them, either their own or on third party, in spite of sufficient balance in the
account. To top it, the bank’s branches refuse to give written objection for
returning the cheque across the counter.
In February, SBI, in a
regulatory filing had stated, “…the entire undertaking of State Bank of Bikaner
& Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore
(SBT), State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH) shall
stand transferred to and vested in the State Bank of India from 1 April 2017.”
What does the rule-book say?
Is it because of systemic failure or management failure? Does the blame rest
with the SBI, or with the Reserve Bank of India (RBI) as well, as it has been a
silent spectator for the last 15 days? Just last week, when Bandaru Dattatreya,
the Union Minister for Labour, approached the RBI’s office at Hyderabad,
the central bank said that it has pumped in Rs1,170 crore worth of currency into
the system, with half of it in the ATMs of banks and the rest to the bank
branches.
Section 5 (c) of the Banking
Regulation Act, 1949 defines a banking company as any company that transacts
‘banking business’ in India.
The Act clarifies, in clause
(b) of the same section, that the expression ‘banking’ found in the definition
should mean accepting, for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise, and withdrawable by
cheques, drafts, order or otherwise. To constitute the business of banking
today, the banker must also undertake to pay cheques drawn upon himself (the
banker) by his customers in favour of third parties up to the amount standing
to their credit in their ‘current accounts’, and to collect cheques for his
customers and credit the proceeds to their current accounts. Lending by itself
does not constitute banking business, clarifies ML Tannan.
A recall to all this became
necessary, for the banks, even of the ilk of the SBI, seem to have forgotten
the basics of banking. Yesterday I paid a carpenter for the work done at my
house, by way of a ‘bearer’ cheque drawn on my savings bank account, Rs13,750,
which was presented at the counter. The official at the counter and the accountant
refused to pay the amount, saying that they can pay cash only up to Rs5,000 as
they do not have enough cash. This is not a solitary instance. During the last
fortnight, many customers faced this situation. Many members of the Resident
Welfare Association, Kalyanapuri, Hyderabad, brought up this issue and demanded
its resolution.
The payee asked for written
objection, which the bank officials refused to provide. The cheque was
otherwise in order in all respects – with proper date, proper signature, with no
difference between words and figures and on top of all adequate balance in the
account. Negotiable Instrument Act
requires that if a cheque or Bill of Exchange, is returned either on the
counter or in clearing, an objection memo duly signed by the authorised
official of the bank shall be provided with relevant reason.
In case a bank branch
declines to honour the cheque in writing for want of cash in its vaults it
would amount to the bank going bankrupt. In the case of SBI it is also the
Agent of Reserve Bank of India and operates currency chest at number of
branches. Whenever one branch falls short of the cash, the Bank is supposed to
make arrangement for filling the vault with the required quantum depending on
the needs of the branch. The transaction between the branches on such count can
form internal cash management of the bank and only information to the RBI is
adequate.
Contrary to this entire practice
if the bank chooses to tell its customers that since there are not enough
deposits coming into its vault and is therefore restricting payments to its
customers withdrawals up to whatever limit it decides surely amounts to sheer
mismanagement and frustrates the customers.
Since the bank is shutting
off the ATMs and refusing to pay cash either in full or in part, the customers
seem to have stopped depositing cash into their accounts and preferred to keep
cash for the rainy day and meeting their essential cash requirements. This sets
the vicious circle into play.
Whenever creditors’ demands
are not met and assets do not support liabilities of a bank, that bank is said
to be on the verge of bankruptcy. But by statute, the SBI cannot go into
liquidation at its will.
Customers are losing faith
in the banks with which they have been transacting for decades!! Bad banking
and good economy can never co-exist. Let not SBI declare bankruptcy ahead of
its merger.
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