A chain reaction is a series of related events in which each event causes the next one, or a chemical reaction in which each change triggers another. The Supreme Court’s ruling on electoral bonds has been just that. Perhaps unforeseen was the extent of the repercussions the State Bank of India (SBI) would subsequently face from that event.
Describing itself as a Fortune 500 company with a history spanning over two centuries, SBI has often been the subject of “out for lunch” jokes—a dig at its slow service. This time, India’s largest bank has also shown us that there are no free lunches, not when the government holds over 50 per cent stake in your bank.
On March 12, SBI submitted electoral bond data to the Election Commission of India (ECI) in compliance with the Supreme Court’s order, but not without a large amount of wrangling. Earlier, SBI had requested an extension of the deadline until June 30 to disclose the data, prompting a stern warning from the apex court. The plea for an extension was rejected, and the court minced no words in its directive: “While we are not inclined to exercise the contempt jurisdiction at this time, we place SBI on notice that this Court may be inclined to proceed against it for wilful disobedience if SBI does not comply with the timeline indicated in this order”.
The ask from the bank was to share the names of donors, their beneficiaries, and the amounts with the ECI, which would then make the information public. However, there was confusion over the timeline and whether the bank could match donor details with redemptions by political parties. The SBI initially suggested it would take several months, then revised its estimate to a few weeks, and eventually to a matter of days before sharing the data with the court and the ECI.
Solicitor General Tushar Mehta speaks in the presence of the five-judge Constitution bench consisting of Chief Justice of India D.Y. Chandrachud and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra during the hearing of the application of the State Bank of India seeking an extension of time till June 30 to submit the details of electoral bonds to the Election Commission of India (ECI). | Photo Credit: ANI
On matching electoral bonds to their recipients, financial experts noted that while the bank would have donor names and amounts of electoral bonds purchased, it would be impossible to match each bond to its recipient. This meant that either the bank had been playing at deception and subterfuge with the court in its initial responses, or that it had been storing this data about bearer bonds, which by their basic definition have no registered owners, illegally.
Documents shared by Reporters Collective, however, revealed that SBI, on the Union Finance Ministry’s bidding, had been collating data on electoral bonds within 48 hours after the redemption deadline ended. This information was regularly shared with the Union finance ministry, indicating that SBI had maintained a data trail of the bonds sold and redeemed by political parties, using a serial number on each bond.
Had the country’s most widely used and trusted bank been untruthful in its responses to the Supreme Court?
Friend for all seasons
When it comes to SBI, the playbook has been predictable.
In March 2020, things went turtle for one of India’s best-known private sector banks, Yes Bank. In a decision that surprised not only analysts but the institution itself, SBI was roped in to lead a rescue mission for the beleaguered Yes Bank. More than Rs.6,050 crore was pumped into Yes Bank as part of a rescue package, giving SBI more than a 48 per cent stake in it.
In an interview with this columnist in November 2020, SBI’s ex-Chairman Rajnish Kumar admitted that for SBI, the Yes Bank merger was an event that was “unforeseen, just like COVID-19”. That stake has been pared down to around 26 per cent over time, but the understanding was that SBI would be required to maintain at least a 26 per cent stake in Yes Bank for three years. This stipulation was put in place by the central bank as part of the restructuring process, and reports indicated that SBI was keen on trimming its holdings in Yes Bank by March 2023.
Members and supporters of Indian Youth Congress stage a protest demanding SBI to reveal the names of Electoral Bond donors in New Delhi on March 5. | Photo Credit: SHASHI SHEKHAR KASHYAP
However, earlier this year, SBI issued a clarification regarding fresh reports of a stake sale, reiterating that no sale was being considered, in part or in full. The shotgun wedding has continued for longer than the bank would have liked but evidently has no control over it. Not just Yes Bank, over the years, SBI has systematically and diligently absorbed a string of smaller financial institutions: State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, Bharatiya Mahila Bank, State Bank of Travancore, and State Bank of Hyderabad. This has left in place a large behemoth that quite often is saddled with more than it would care to manage.
Ironically, the bank as a business has had a good run over the last few years, riding on a “Goldilocks” phase of strong growth and strong profitability. Steady loan growth, improved margins, and the paring down of non-performing assets seemed to have placed public sector banks in a sweet spot. Profitability has also improved. As reports showed, for the first time, the net profit of public sector banks crossed Rs. 1 trillion in 2022-23, and SBI accounted for about 50 per cent of these profits. In fact, in a recent note, brokerage house Bernstein downgraded SBI but admitted that the downgrade was in part due to the sharp re-rating the bank had seen, leaving limited upside from an admirable run in both business and stock price. Goldman Sachs reflected similar concerns, pointing to growth challenges on deposits and a troubled consumer lending landscape.
In November last year, the government was considering stake sales in public sector banks. Merely paring down the stake in SBI to 50 per cent could potentially earn the government over Rs.30,000 crore, and the buzz was that the Union Finance Minister Nirmala Sitharaman was open to the idea of disinvestment of equity stake in blue-chip public sector undertakings, including SBI.
Will recent incidents around the electoral bonds scheme inspire confidence in large investors the government may be keen to court? More importantly, what should an ordinary citizen make of these events and whether the bank they trust their life savings with is truly independent, reliant, and competent?
Members and supporters of Indian Youth Congress stage a protest demanding SBI to reveal the names of electoral bond donors in New Delhi on March 5. | Photo Credit: SHASHI SHEKHAR KASHYAP
Who is responsible?
Preferred by over 48 crore customers, this part-financial institution, part-government lackey model for SBI has begun to show signs of stress. The past few years have seen a string of protests from SBI’s over 2 lakh employees: pressure to shift to marketing-based activities, harsh working conditions, a shortage of manpower, and network breakdowns. A significant part of the problem has been the government-prescribed “add-ons” SBI employees are struggling to cope with: peddling policies such as the Jan Dhan Yojana, frequent loan melas, and moving targets on waivers. These issues have all pointed to growing frustration about ineffectual management and an agenda much broader than that of their private sector peers.
The captains steering this giant oil tanker of a bank have also had choppy runs. Former SBI Chairman O.P. Bhatt was part of a six-member expert committee set up by the Supreme Court to probe allegations against the Adani group following a report alleging financial irregularities by a US short seller. However, petitioners pointed out this was a clear conflict of interest as Bhatt is also the head of the renewable energy firm Greenko, which has commercial dealings with the Adani Group. There have also been concerns around his reappointment as an independent director of Tata Motors Lt., given that he already holds director-level positions in Tata Consultancy Services Ltd and Tata Steel Ltd.
In October 2021, former SBI chairman Pratip Chaudhuri was arrested in a loan scam case related to a hotel in Jaisalmer. He had been booked in 2015 for seizing the hotel property in a loan settlement case and allegedly selling it at a throwaway price through fraudulent means. He also became a director on the board of the company which purchased the hotel. Chaudhuri was subsequently granted bail, and several public sector bank voices spoke in support of Chaudhuri.
“Preferred by over 48 crore customers, this part-financial institution, part-government lackey model for SBI has begun to show signs of stress.”
Dancing for the master
In the most recent episode, this rather public dressing down of SBI by the Supreme Court has led to calls for the bank’s chairman to resign. But that fails to recognise a deep-rooted problem. It is not the co-opting of an individual but the subjugation of the country’s most vital institutions, in this case, our largest and most widely used bank, to the power of the executive.
What has remained unsaid but understood while analysing India’s banking sector is the valuation gap that has always existed between private and public sector banks. For one, because of the gap in agility to function. But equally, the fear that public sector banks have always been more pliable to government pressure—as SBI displayed in the electoral bonds incident.
Since the apex court’s order, SBI has supplied the electoral bond data in as chaotic and convoluted a fashion as possible. It has missed deadlines, details, and directions. And even though several months of data are still missing, the bank deleted electoral bond-related documents from its website. There has been quick analysis by intrepid journalists that points to the level of coercion and corruption involved. In almost clockwork fashion, the electoral bond scheme has seen a ‘pre and post-raid’ nature to things, where Enforcement Directorate raids have been the precursor to companies then making large donations to this opaque scheme. In many cases, the contributions are several times the profits of the company in question. All happening with the country’s largest bank playing the role of an unseeing, unknowing repository.
Over the years, many an interviewer has asked of this gargantuan financial institution, can the elephant dance? It can – but only for its master.
Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focus on civil society and financial literacy and her key areas of interest are gender and climate change.
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