Public sector banks merger move against laws, says AIBOC

Officers’ body writes to Parliament members seeking halt to move

THRISSUR: The All India Bank Officers Confederation (AIBOC) that boasts about 3.2 million members is in no mood to let go the proposed merger among Vijaya Bank, Dena Bank and Bank of Baroda as the Confederation firmly believes the move bypasses the Parliament, the regulator – RBI, Expert Committee, the respective banks’ boards and other stakeholders.

AIBOC has already written to the members of the Parliament seeking their intervention in the matter and to discourage the government away from the move that is not only detrimental to the banking sector, but damaging to the economy as a whole.

The inherent risk of several employees being rendered redundant and the impending spectre of closure of several branches apart, the AIBOC raises the serious doubt whether the merger move is in violation of certain rules with regard to bank mergers and in deviation of certain practices steeped in the banking history of the country.

Talking to businessbenchmark.news in Thrissur, Soumya Datta, general secretary of AIBOC, explained that as per Section 9 (2)(C) of the Banking Companies Acquisition & Transfer of Undertaking Act 1970 with amendment in 1980, the views of RBI is mandatory in respect of mergers among banks in the country.

He said the government (Central) never disclosed the views of RBI to public at large. Hence, the decision of Alternative Mechanism Committee set up by the Finance Ministry some time back is in total violation of that section. He also underlined the fact that the views of the Employee/Officer Director, which is obligatory whenever there is a proposal for amalgamation of banks in terms of the provisions of the said Act, is not available here as the Government is yet to appoint Employee/Officer Director in the respective bank’s boards to smoothen its ‘arbitrary, forced’ merger.

Again, referring to the Section 9(6) of the said Act, he highlighted that any scheme meant for amalgamation of one/two banks with any other bank, has to be laid before each House of Parliament while it is in session for a total period of 30 days.

Datta said AIBOC, along with other banking fraternity, believe that merger is not a panacea for the prevailing problems in the banking sector. On the contrary, he said, it would certainly aggravate the situation if allowed to be accomplished. It is pertinent to note that the NPA level has reached a whopping 24.9 per cent (Rs16,361 crore) for Dena Bank, while it is 13.2 per cent (Rs 56,480 crore) and 6.5 per cent (Rs7526 crore) respectively for Bank of Baroda (BoB) and Vijaya Bank as on March 31, 2018.

AIBOC is of the view that merger could invite in all sorts of challenges in terms of people, technology, product, branch integration, etc. that may take several years to get resolved. Moreover, containing the huge NPAs and their recovery from big corporate houses are crucial to the very survival of these banks.

In a recent note to the Parliamentary Estimate Committee on Bank NPAs, former RBI Governor Reghuram Rajan had termed bank merger a “non-solution” to the present stressed assets crisis of the banks. He had noted, We need the concentrated attention by a high-level empowered and responsible group set up by government on cleaning up the banks. Otherwise, the same non-solution (bad bank management teams to take over stressed assets, bank mergers, etc.) keeps coming up, and nothing would really move.”

Referring to the whole idea of multiplying the (banking) system with small and payment banks, Datta asked whether this is not against the ethos of creating such big (banking) structures.  “We need to ask ourselves as to whether or not there appears a contradiction here. It won’t be surprising, at a later stage, if we opt for merger of these small banks and payment banks, because they would also be facing similar challenges as size will matter,” he quipped.

The question is how does creating a new entity with a bank carrying bad loan of 24.9 per cent (Dena Bank) and another one with 13.2 per cent (Bank of Baroda) genuinely help in the first place? “What it does is that it sweeps under the carpet the bad state of both Dena Bank and BoB. And hence, the Government will, at the end of the day, have fewer number of problems to deal with in public, than before. But unfortunately, in the process, it will pull down the performance of Vijaya Bank too,” Datta said.

Datta demonstrated the case of the merger of SBI and its Associate Banks that met with a bad conclusion. The overall bad loan ratio of SBI as of March 31, 2018 was 10.9 per cent. The fact is that though SBI was not in such a precarious position until March 2017, the merger of Associate Banks pulled down the performance of SBI ratcheting up the NPA of the merged entity by Rs48,000 crore as on March 31, 2018.

“The merger was not only a commercial failure but according to Bloomberg, it also resulted in the closure of 1805 branches, fall in staff strength by 15,762 due to VRS, even after the new recruitment of 3211 employees, and administrative hassles despite the merger being within the associate banks,” Datta reminded.

In view of the possibility of such undesirable developments, AIBOC has appealed to members of both Houses to prevail upon the Government of India to scrap the forced merger proposal once and for all like the Financial Resolution and Deposit Insurance  (FRDI) Bill in the greater interest of the banking system and the country.

 

One Comment

  • N C Joseph says:

    I am not sure whether permission of Competition commission is sought in these cases which is mandatory. It would take minimum 240 days to get clearence.

    Capitalising 20% of the SECURED NPA would resolve the mounting NPA issue provided laws are made to support such an action. Prolonged litigation to be arrested and in all cases where debt is not disputed immediate recovery action to be initiated . Such speedy action would help to liquidate a portion of current assets before value depletition occurs. The present situation is that due to the delay and lethargy in the system nothing is realised from current assets even though they are projected as primary security while account is performing.

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