Big banks runs bigger risks and may not serve people’s interest: merger of banks diversionary tactics

Merger of Banks is a murder of Banks: In a big bang announcement, finance minister has informed the nation that 10 public sector banks (PNB, Canara Bank, Union Bank of India, Indian Bank, United Bank of India, Allahabad Bank, Syndicate Bank, Corporation Bank, Oriental Bank of Commerce and Andhra Bank) will be merged into four banks.

The meaning is that six banks will now get closed. Government may call it a merger but in reality it is cold-blooded murder of these six banks, because after merger these six banks which have been built up over the years, will disappear from the banking scenario.

Banks were nationalised in 1969 with a very clear social and economic objective of broad-basing the economy and its development. In the last 50 years, the nationalised banks have made a phenomenal contribution in building up a strong economy with a visible social orientation.

Just 8,000 branches have become 90,000 bank branches today, out of which 40,000 branches in located in rural and semi-urban areas which were earlier neglected.

Credit to priority sector has boosted our economy resulting in achievements like green revolution and white revolution, industrial progress, job generation, rural development, etc. In 2008 when the entire globe was facing financial turmoil and banking tsunami, Indian banking system was safe because of our public sector banks.

Government wants ‘Sabka saath, sabka vikas’ but cuts the lifeline to prosperity. It government talks of prosperity for all but by closing down these six banks, six main arteries of the banking system are being cut off.

The victim banks, that are Allahabad Bank, Andhra Bank, Corporation Bank, Syndicate Bank, United Bank of India and Oriental Bank of Commerce are very good banks and have catered to the economic development in the respective geographic areas in a big way. Suddenly deciding to close these banks is inappropriate and unwarranted.

The country is facing serious economic slowdown and downturn. Banks with their huge resources at their command can play a decisive role to revive the economy. In fact, only last week, our finance minister has assigned important jobs to our banks in boosting the economy. The decision to merge and close banks is a total diversion from these tasks.

Bank themselves face problems due to huge pile of bad loans. While the Public Sector Banks made a total gross profit of Rs. 150,000 crores for the year ended March 31, 2019, because of total provisions towards bad loans, etc. amounting to Rs. 2,16,000 crores, the banks ended in a net loss of Rs. 66,000 crores.

Can anyone believe that merger of Banks will result in recovery of the huge corporate bad loans? Rather, as we have observed after merger in SBI, bad loans in SBI has gone up. Banks will be facing the same risk now.

If the bank that failed even to detect Nirav Modi fraud for many years would be more effective if it becomes still bigger? In fact banks, if they become too big, cannot monitor their business effectively. For example, PNB could not realise that Nirav Modi was cheating their Bank for many years. If banks will become further big, it will become more difficult to monitor bad loans and frauds when frauds are already on the increase.

Too big to fail has been thoroughly proved wrong when in 2008, many big banks all over the world collapsed like a pack of cards. Big bank means big risk, because the big bank can give big loans and take big risks and ruin the bank. What India needs is strong and people-oriented banks and not necessarily big banks.

Everyone knows that in India, banking density is much low compared to many countries of the world. Thousands of villages are still unbanked. Our banks need expansion and not amalgamation. There is a huge space for banks to expand and reach the people.

When we need more branches to be opened, merger of banks will result in closure of large number of branches. We have seen after merger in SBI that 7000 branches were closed down. In this proposed merger, the closure of branches will be much more. It will be most unwise to reduce the branches in the country.

There is another side effect of merger and making our Banks bigger. Big banks will tend to cater to big corporate customer and would tend to ignore the common man. This will defeat the social orientation and objectives of nationalised banks.

Mergers will result in closure of branches and shrinking of banking services. The closure of branches would mean more number of customers going to lesser number of branches and banking services would be severely affected. Customer population per bank branch will increase and affect efficient customer service.

Globally big banks are myth only. The argument that by merging our banks, they will become globally big banks and globally competitive, is a mere myth. Even all our banks are merged into one bank, the capital base would be around four billion Dollar whereas most of the global banks operate with capital base of 60 billion dollar, 70 billion dollar, 80 billion dollar.

In our country, where unemployment is a serious problem of the youth, banks have been providing employment to thousands of those among them educated youth every year. If banks are merged and branches are closed, intake of staff will come down and hence employment opportunities will be seriously affected.

Big Banks will only help the big corporates. It is obvious that the government, in the name of banking reforms, wants to enable the banks to help the corporates. Bank employees under the banner of AIEBA oppose the proposed closure of these six banks. A massive agitation will be launched against the Governments decision.

(The writer is the General Secretary of the All India Bank Employees Association)