GANESH65
Active member
Bank employee strike: Why the trade unions are fighting a losing battle
bank employee union strike on Friday to protest against the proposed merger of State Bank of India (SBI’s) remaining subsidiaries with the parent and the privatization of IDBI Bank, signals a key hurdle India faces on the path to reform its crisis-ridden public sector banks.
Trade Unions are likely fighting a losing battle as we have seen in the last two instances when the government merged two of the subsidiaries with the parent, State Bank of Indore and State Bank of Saurashtra. If the government decisively moves ahead with the proposals, there isn’t much the trade unions can do but fall in line.
Representational image. AFP
So is the case of privatization process of IDBI Bank, where the government wants to lower the stake to below the controlling 51 per cent.
Nevertheless, each bank strike causes disruptions to the general public even though the effectiveness of bank strikes, over the years, have weakened as most banks are fast moving away from branch-centric banking to alternative modes.
Customers today can use ATMs, internet and mobile banking services for basic banking transactions even on a strike day. But, other transactions that require the customer must go to the branch gets disrupted. This time around, bank unions under the United Forum of Bank Unions (UFBU) have planned the strike as Parliament is in session and unions want their voice to be heard in the House.
Privatising nationalised banks
Today, there is a strong case for privatisation of nationalised banks, at least some of them to begin with. One could argue that four decades of nationalization is largely a failed experiment as evident from the health of state-run banks and considering the progress they have made on achieving their original goal—promoting financial inclusion. State-run banks, all 27 of them, continue to be the extended divisions of the incumbent governments and mere tools to role out government schemes and become victims to corporate-political nexus. These banks still lack autonomy and scope to innovate in major way unlike their private sector counter parts.
The private sector banks continue to be much healthier than state-run lenders on all parameters on account of the free market principle they operate in. Only those which have improvised their business models have been able to survive. The laggards have been forced to shut shop or merge with stronger rivals over time. Those remaining are fit to face competition and find capital from the market time to time by growing healthy balance sheets.
As against this, state-run banks continue to be the finest specimens of white elephants in the Indian banking sector. They wait for their turn with a begging bowl every year in front of North Block for survival money. This ‘begging bowl syndrome’ has been present since the time they were born. They still continue to be a heavy burden on the state exchequer. In the last nine years, the government has infused Rs 1.18 lakh crore in state-run banks, including the Rs 23,000 crore infused so far this fiscal year. SBI has received the largest pie (Rs 29,000 crore). But, this money has only contributed to a fraction of the massive capital requirement of government banks given their huge funding gap to meet the Basel-III norms, bad loan provisioning (about 11-12 per cent of the bank loans are currently stressed) and credit expansion requirements.
Begging bowl syndrome
Global rating agency, Fitch, estimates Indian banks will need $90 billion in total additional capital - most of which will be accounted for by the public banks - to meet Basel III requirements by 2019. This year, the government has infused Rs 22,900 crore. But, rating agency, Icra, estimates that PSBs would require capital in the range of Rs 40,000 crore to Rs 50,000 crore for the period. This ‘begging bowl syndrome’ is likely to worsen in the approaching years.
Forty seven years after Indira Gandhi announced their nationalization, nothing much has changed in PSBS. Except the largely cosmetic changes in government-programmes like the ‘Indradhanush’ offer, PSBs continue to be largely extended arms of the government. A large part of the burden of social sector funding, priority sector lending and making government schemes successful still fall on them on a regular basis. This is something Reserve Bank of India (RBI) governor Raghuram Rajan has highlighted in the recent past. But the major reason for the current NPA (Non-performing Assets) mess in these banks is their lack of efficiency in credit appraisal process and careless lending practices to grow their loan books.
Till recently, every outgoing chairman wanted to show maximum growth in the bank's business volume while little attention was paid on quality of growth. Autonomy of operations and scope to innovate was a word too distant for these entities. The idea of nationalization—take banking services to millions of unbanked—has progressed but still remains a task far from the target.
The purpose of explaining these facts is to make a case for privatisation of state-run banks in the changing banking industry, which seems to be the only way to bring efficiency in these banks. This doesn’t need to be done at one go. Smaller banks can be experimented with in the initial phase and at the end of the whole exercise, the government can still retain 4-5 large public sector banks.
But, the status-quo cannot go forever in the fast changing world of banking. As Firstpost noted in an earlier article, the big and imminent problem for PSBs is that the industry around them is changing too fast. With new payments banks and small finance banks stepping in and existing private banks ramping up their technology base, the competition has intensified a lot. These new lenders are relying heavily on technology such as mobile and internet banking rather than traditional brick and mortar model. These banks typically target the young customer-segment in the urban, semi-urban areas that are tech savvy. In comparison to them, PSBs have failed to catch up in the desired manner.
Trade unions in state-run banks, in the past, has acted as a powerful corrective force against the excesses by bank managements but has somewhat lost steam in the recent years with the newly joined young officers and employees showing no active interest union activities, even though most of them religiously contribute to the monthly subscription fees. However, one cannot ignore the fact that the trade unions continue to be a formidable force in nationalized banks. A confrontation between unions and the managements will only be self-destructive for both. In this backdrop, bank trade unions should seriously rethink their course and priorities for the greater good of the banking sector. Else, they are fighting a losing battle.
bank employee union strike on Friday to protest against the proposed merger of State Bank of India (SBI’s) remaining subsidiaries with the parent and the privatization of IDBI Bank, signals a key hurdle India faces on the path to reform its crisis-ridden public sector banks.
Trade Unions are likely fighting a losing battle as we have seen in the last two instances when the government merged two of the subsidiaries with the parent, State Bank of Indore and State Bank of Saurashtra. If the government decisively moves ahead with the proposals, there isn’t much the trade unions can do but fall in line.
Representational image. AFPSo is the case of privatization process of IDBI Bank, where the government wants to lower the stake to below the controlling 51 per cent.
Nevertheless, each bank strike causes disruptions to the general public even though the effectiveness of bank strikes, over the years, have weakened as most banks are fast moving away from branch-centric banking to alternative modes.
Customers today can use ATMs, internet and mobile banking services for basic banking transactions even on a strike day. But, other transactions that require the customer must go to the branch gets disrupted. This time around, bank unions under the United Forum of Bank Unions (UFBU) have planned the strike as Parliament is in session and unions want their voice to be heard in the House.
Privatising nationalised banks
Today, there is a strong case for privatisation of nationalised banks, at least some of them to begin with. One could argue that four decades of nationalization is largely a failed experiment as evident from the health of state-run banks and considering the progress they have made on achieving their original goal—promoting financial inclusion. State-run banks, all 27 of them, continue to be the extended divisions of the incumbent governments and mere tools to role out government schemes and become victims to corporate-political nexus. These banks still lack autonomy and scope to innovate in major way unlike their private sector counter parts.
The private sector banks continue to be much healthier than state-run lenders on all parameters on account of the free market principle they operate in. Only those which have improvised their business models have been able to survive. The laggards have been forced to shut shop or merge with stronger rivals over time. Those remaining are fit to face competition and find capital from the market time to time by growing healthy balance sheets.
As against this, state-run banks continue to be the finest specimens of white elephants in the Indian banking sector. They wait for their turn with a begging bowl every year in front of North Block for survival money. This ‘begging bowl syndrome’ has been present since the time they were born. They still continue to be a heavy burden on the state exchequer. In the last nine years, the government has infused Rs 1.18 lakh crore in state-run banks, including the Rs 23,000 crore infused so far this fiscal year. SBI has received the largest pie (Rs 29,000 crore). But, this money has only contributed to a fraction of the massive capital requirement of government banks given their huge funding gap to meet the Basel-III norms, bad loan provisioning (about 11-12 per cent of the bank loans are currently stressed) and credit expansion requirements.
Begging bowl syndrome
Global rating agency, Fitch, estimates Indian banks will need $90 billion in total additional capital - most of which will be accounted for by the public banks - to meet Basel III requirements by 2019. This year, the government has infused Rs 22,900 crore. But, rating agency, Icra, estimates that PSBs would require capital in the range of Rs 40,000 crore to Rs 50,000 crore for the period. This ‘begging bowl syndrome’ is likely to worsen in the approaching years.
Forty seven years after Indira Gandhi announced their nationalization, nothing much has changed in PSBS. Except the largely cosmetic changes in government-programmes like the ‘Indradhanush’ offer, PSBs continue to be largely extended arms of the government. A large part of the burden of social sector funding, priority sector lending and making government schemes successful still fall on them on a regular basis. This is something Reserve Bank of India (RBI) governor Raghuram Rajan has highlighted in the recent past. But the major reason for the current NPA (Non-performing Assets) mess in these banks is their lack of efficiency in credit appraisal process and careless lending practices to grow their loan books.
Till recently, every outgoing chairman wanted to show maximum growth in the bank's business volume while little attention was paid on quality of growth. Autonomy of operations and scope to innovate was a word too distant for these entities. The idea of nationalization—take banking services to millions of unbanked—has progressed but still remains a task far from the target.
The purpose of explaining these facts is to make a case for privatisation of state-run banks in the changing banking industry, which seems to be the only way to bring efficiency in these banks. This doesn’t need to be done at one go. Smaller banks can be experimented with in the initial phase and at the end of the whole exercise, the government can still retain 4-5 large public sector banks.
But, the status-quo cannot go forever in the fast changing world of banking. As Firstpost noted in an earlier article, the big and imminent problem for PSBs is that the industry around them is changing too fast. With new payments banks and small finance banks stepping in and existing private banks ramping up their technology base, the competition has intensified a lot. These new lenders are relying heavily on technology such as mobile and internet banking rather than traditional brick and mortar model. These banks typically target the young customer-segment in the urban, semi-urban areas that are tech savvy. In comparison to them, PSBs have failed to catch up in the desired manner.
Trade unions in state-run banks, in the past, has acted as a powerful corrective force against the excesses by bank managements but has somewhat lost steam in the recent years with the newly joined young officers and employees showing no active interest union activities, even though most of them religiously contribute to the monthly subscription fees. However, one cannot ignore the fact that the trade unions continue to be a formidable force in nationalized banks. A confrontation between unions and the managements will only be self-destructive for both. In this backdrop, bank trade unions should seriously rethink their course and priorities for the greater good of the banking sector. Else, they are fighting a losing battle.
