Indian public sector bank merger may not lead to what the government desire for, a lot of disagreement and fear among the bank’s employees led to a pan India agitation, affecting daily transaction prior to Diwali may affect the holy season.
- Two major bank unions with 3 lakh employees went on strike against the government’s public sector banks merger move.
- 5,000 Banks will be shut down permanently, and private small private banks are expected to fill the gap.
- Employees are sceptical as it may lead to job losses, forced early retirement, disagreements, and discrimination across merging banks.
- FM Nirmala Sitharaman said it will help bank employees and the Indian economy to focus on the International Market.
- With instances of curbs on transactions from public sector banks, unhappy customers are shifting towards private banks.
The two bank unions All India Banks Employees Association (AIBEA) and Bank Employees Federation of India (BEFI) went on strike. They are protesting the government’s decision of merging Public Sector (PSU) Banks. It has partially hit the Indian banking system as around 3 lakh unhappy employees went on strike.
The merger of 10 banks is a part of the government’s strategy to extensively consolidate the banking system. It is an effort to tackle the ongoing spurt of NPAs, bad loans, and the crisis created by loan defaulters. These events somewhat triggered the current Indian economic slowdown. It resulted in curtailing people’s buying capacity. Above all, it scattered India’s dream of becoming a $5 trillion economy.
This PSU bank merger also has advantages and disadvantages like, what if the banks keep on giving the loans and creating more loan defaulters. Earlier banks were small but after merging these public entities became giants. If the same occupation of loan defaulter continues, then the Indian economy would be shattered down. Great power comes with great responsibilities, and when “great” fall, the fall is greater.
Benefits of Bank Mergers: What the Government claims
After the August 2019 announcement, the government said that the decision won’t harm any employee at any stage of their job. No chance of retrenchment i.e. losing of jobs would be there, and the merger will benefit the employees.
However, in April 2019, the government had merged Bank of Baroda with Vijaya Bank and Dena Bank. The amalgamation also led to massive protest by the employees. But none of them retrenched.
Moreover, FM Nirmala Sitharaman said that bank mergers in India saw a good result in the past. As per the FM, they saw rapid growth, massive profits and valuation gains. She further added that the plan of amalgamation is crucial in turning India into a $5 trillion economy. For the goal, India needs to increase its lending capacity and provide service through modern technology.
She also said that this amalgamation would turn the banks bigger and then it can focus on International markets. The remaining small banks, mostly the private ones, would focus more on the domestic market.
Disadvantages of merging public banks on their employees
- The merger of public sector banks will create an excess workforce, which will consecutively lead to early VRS (maybe forcefully).
- It will also stop further hiring or recruiting people curtailing employment opportunities.
- It will result in the closure of many bank branches, administrative offices, and ATMs.
- It could ignite clashes between MDs (Managing Directors), EDs (Executive Directors), and GMs (General Managers). Senior executives in sync are vital while incorporating the works, plans and services.
- Because of different banking nature, banks don’t share the same culture, systems, and procedures. This may also lead to clashes. Perhaps large banks will not treat the smaller banks employee equally. This could affect employees’ promotion. Furthermore, there will be possible grounds that out of hatred they could transfer the employees to far-flung places. This will create an unhealthy working environment in the workplace.
- India’s Bank Mergers will also bring down the number of posts at the top-level executives (MDs, EDs, and GMs).
- The merger of a weak bank to a stronger one will also affect the efficacy of the stronger bank. The losses incurred by the weak banks may wipe-out the profits earned by these strong banks.
However, AIBOC (All India Bank Officers Confederation) said that the government has a plan of privatizing public sector banks. The move aims to target, attract, and lure foreign investment, for example, HDFC, ICICI and Axis Bank.
Moreover, AIBEA said the government is likely to shut down around 5,000 different branches. This will pave the way for the small private banking system to occupy the space. India’s government claims that the Bank mergers move will further strengthen the privatizing banking business in India.
The unions are also protesting the recent reforms in the Indian banking system and the increasing NPAs in India. The ongoing demand of the unions is to take stringent action against the loan defaulters. Loan defaulting is one of the reasons for the Indian banking crisis.
If customers lose trust in Public Banks
The ongoing strike hits the daily business market, especially the wholesale and retailers who receive and delivers chunks of orders. Their business makes it essential for them to visit banks regularly. Small business owners regularly deposit cheques and cash or transfer hefty amounts through RTGS. Cashless ATMs will further trigger the customer’s scepticism towards trusting the smaller banks.
If this continues for long, then customers would turn towards private banks. to ensure smooth business transactions for their business. This goes against the agenda of banks in improving their customer base by including more people. This is what the government wants, i.e. increasing the small private banks to fill up the remaining gaps.
- NPAs (Non-Performing assets), bad loans, and the crisis created by loan defaulters led to the government’s move.
- Bank merger will stop further hiring or recruiting people, thus curtailing employment opportunities.
- The government has a plan of privatizing public sector banks to target, attract and lure foreign investment.
- If the same occupation of loan defaulter continues, then the Indian economy would be shattered down. Great power comes with great responsibilities, and when “great” fall, the fall is greater.