The Finance Minister, on August 30, announced a mega-plan to merge ten public sector banks into four large ones. The intention of the merger is to create large global lenders to boost economic growth in the coming years.
But the announcement was met with mixed reactions. Bank employees from across the country opposed the move by taking out protest rallies and wearing black badges to work.
CH Venkatachalam, General Secretary of All India Bank Employees Association (AIBEA) and a retired banker with 40 years of service in a public-sector bank spoke to The News Minute about the merger plan, its implications and more.
What do you think about the bank mergers? Why are bank employees objecting to it?
Firstly, this is the most unwarranted move and comes at a wrong time. Banks become bigger when merged, and this might not necessarily result in stronger banks. If one weak bank is merged with another weak bank, the resultant bank is also going to be weak. If one weak bank is merged with a strong bank, the resultant bank will be less strong. Hence this theory does not stand as a justification for merger.
Secondly, big banks always have big risks. Examples for this can be banks in the USA. Bigger the risk, bigger the fall could be when something goes wrong. In India, we need stronger banks and not bigger banks, since banks represent ordinary peopleâ€™s money. And for that we need smaller, stronger banks. Common people cannot afford to take the big risks that bigger banks take.
Lastly, the governmentâ€™s priority currently should be revival of the economy. Banks are extremely important in economic revival and need to focus on pushing development. Instead, due to this merger, the banks are going to be tied up in merger activities for the next 9-12 months.
Due to the merger, the banks will also not worry about recovering loans because their banks will anyway merge with some other bank.
Apart from economy, what other major implications do you see from the merger plan?
Another implication from this merger would be loss of employment for the bank staff. We saw this in the State Bank of India merger. The merger caused 7,000 bank branches across the country to shut down.
In the current economic climate, the government is supposed to expand banking operations, instead of closing it down. If the number of branches is reduced, the burden of servicing the same number of people falls on a lesser number of branches. This will severely impact the quality of services that banks offer.
When bank branches are shut down, as per the promise of the Finance Minister, bank employees will be displaced, and bank branches will be rationalised. When an employee has family commitments tying him or her down to a city or town, forcing them to go elsewhere will create pressure on them to resign their jobs. So even if the Finance minister wants to keep jobs intact, she cannot ensure it.
Non-Performing Assets (NPAs) have been a talk point in the recent past. How can banks minimize NPAs?
The only way to reduce NPAs is to recover them.
For every 100 loans banks give, four or five tend to go bad. This is a risk that banks are willing to take. But banks must be careful while giving out loans since the money is from people who have accounts in that bank. Hence, they must ensure that the risk of losing that money is minimum.
I can understand when an agricultural loan or education loan or even a housing loan going bad, but a bulk of the NPAs are loans given to corporates. The banks are supposed to act tough against defaulters and file criminal complaints against such big borrowers.
Also, in recent times, the focus of the banks has shifted from recovery to resolution. This is helping big corporate companies to buy off smaller debt-ridden companies by paying a fraction of the original value, because banks are happy getting something instead of nothing. Examples of this would be Tata Steel buying Bhushan steel and Reliance acquiring Alok Industries. Finance Minister saying that banks have recovered 1 lakh crore rupees from NPAs is to be placed in context. Of the Rs 4 lakh crore debt, they have recovered Rs 1 lakh crore. That is a mere 25% of the outstanding amount of NPAs.
The RBI has recently asked to transfer Rs 1,76,000 crore from its reserves to the central government. Your thoughts on it?
The Reserve Bank of India (RBI) is a body that is supposed to be autonomous in its functioning. This means nobody can interfere with its management and decisions. This decision to transfer the excess reserves of RBI to the government is, in a way, forcing RBI to take risks.
RBI generally uses its reserves to attend to emergency situations in the economy. By this decision, the government has effectively told RBI to somehow transfer the extra cash it has and keep only the bare minimum required.
At a time when the economy is fluctuating so much with GDP and production falling and inflation going up, RBI should have some fallback options. Instead, the government is emptying its. Hence RBIâ€™s ability to intervene to stabilise the economy will be very less. That is risky for the country. It is totally wrong.