Bank mergers are a misguided false step

Can merely merging 10 banks by dumping six financially tottering banks on four relatively viable ones make the four banks stronger or weaker? Though this is a matter of common sense and one need not have to be a financial expert to find the right answer, why is the government doing this and arguing that this move would create stronger banks?

If a government, strapped for cash due to fiscal crisis in a sluggish economy with revenues on a free fall, cannot afford to shell out money from the budget for recapitalisation, can a shortcut of mergers be a viable long-term solution?

A section of the bank employees are also alleging that bank merger is a conspiracy to facilitate greater disinvestment and ultimate privatisation of PSBs. In what way is this so?

The government is coming up with the brazen lie that the government is merging the banks to meet Basel-III norms. But Basel norms are about ratios like cash reserve ratios, statutory reserve ratios and credit-deposit ratios and so on, and they are not about size. Then why is the government indulging in such misleading false propaganda?

That mergers would bring down the non-performing assets (NPAs) is another fraudulent excuse offered by the government. Increasing the size of the banks will not decrease the size of the NPAs. Is this rather a diversionary move to deflect public attention from the NPAs and for going slow on recovery process against the corporates by bringing defaulters under Insolvency and Bankruptcy Code?

Can the disruptions caused by the mergers, especially due to software incompatibility between banks, be overcome by February 2020 as the officials claim?

Merger of banks and creation of big banks is peddled as a panacea for the economic slowdown in the country. Will the merger and the associated disruptions help economic recovery or hamper it?

To get clarity on these questions, Mr. Vasant Rai, a prominent all-India leader of AIBEA, the largest union of bank employees, and the President of Karnataka Bank Employees Federation was approached. AIBEA General Secretary CH Venkatachalam has come out with a 15-point statement on 3 September 2019 giving a point-by-point rebuttal of government’s arguments for merger and quoting from that, Mr. Vasant Rai clarified these questions.

Mr. Rai says, “Government argues that Banks would become stronger by mergers. There is no evidence to this conclusion. 2 years ago, 6 Banks were merged with SBI with a similar argument. But SBI has not become any stronger. Rather, only the problems of SBI have become bigger. Branches have been closed. Staff have become surplus. Business expansion has slowed down. NPAs have gone up. Bigger doesn’t mean stronger. The same would repeat in this case of 10-bank mergers also.”

“If we go by the past instances of merger, State Bank of India still continues to face financial stress in the post-merger scenario. The merger of Dena Bank and Vijaya Bank with Bank of Baroda has not yet yielded any significant improvements. So bigger is stronger is a big lie”, he adds.

Mr. Rai further says, “Consolidation is a misnomer. The government’s argument that consolidation would take care of banking expansion is a myth. Consolidation would amount to shrinkage of banking. India is underbanked. The number of Banks in USA with just 323 million population is far more than Banks in India with a population of 1.35 billion. India is not overbanked.

“A large number of people still remain financially excluded today. In the name of consolidation, only one branch of the merged banks would be allowed within a given perimeter and other branches would be closed. Merger of banks means murder of branches and disruption for consumers. The earlier merger of six banks with SBI led to the closure of 6950 branches. Closure this time would be many times more. Why can’t the minister share these figures with the public?”

Mr. Viswanath Naik, former General Secretary of the Vijaya Bank union affiliated to the AIBEA asks, “Banks fulfilled a social role. Could India have achieved food security without PSBs financing the Green Revolution? Where will be Modi’s Jan Dhan scheme today without the role of the PSBs?”

VSS Sastry, a retired Canara Bank employee and formerly an AIBEA leader says, “This move is actually some kind of window-dressing to prepare conditions for greater disinvestment in these banks. Also the idea might be to prepare favourable conditions for big corporate houses like Ambanis and Tatas to takeover huge banks”. H

e says, “The official propaganda that this is being done to meet Basel-III norms is also mischievous. Ratio is ratio, no matter whether the size is big or small. If you increase the size, reserve ratios might turn adverse also.”

“The Supreme Court spiked an RBI circular directing the banks to take the defaulting companies to insolvency proceedings. When the Allahabad HC gave a similar ruling in the case of power sector NPAs, the RBI succeeded in convincing the court on the need for coming hard on defaulters and the court consented. Modi’s puppets foisted at the top of the RBI never bothered to move the apex court for reconsideration, and convince the court for stronger measures to recover bad debts.

Fearing backlash from corporates, Modi Government is also going slow on insolvency proceedings, and to cover that up they are trying to create a false impression that this move is aimed at tackling NPAs. But this will not deceive the employees”, he adds.

“The bank employees have already started protests and the protests would only grow in the coming days because of increasing disruption in normal banking operation. This is because the software used by different banks is not compatible with each other, and the day-to-day transactions are to be reconciled the same day or the customers would face problems in their further transactions.

Reserve ratios also need to be reconciled every month. The employees’ workload would go up due to manual repetition of work. The disruption caused by incompatibility in SBI merger has not been sorted out till date. How can they sort it out before February 2020 when 10 banks are involved? Do they have any magic wand?” Sastry asks.