The Government has had made grand plans of disinvestment of public sector banks, recently through the announcements during the Budget 2021-22 made by Finance Minister Nirmala Sitharaman. Apparently, banking unions are not particularly happy and the All India Bank Officers’ Confederation (AIBOC) has released a rather harsh statement opposing the same.
It read that the proposed privatization of two public sector banks and one general insurance company, according to four officers’ organizations representing the entire fraternity of officers finds this to be deplorable and they resolutely oppose the proposal of the same in Union Budget 2021.
The largest trade union of bank employees which consists of officers as well as clerical staff – All India Banks Employees Association (AIBEA) – is also opposing the PSB privatisation.
Warning of possible strikes, the statement said that privatizing would mean handing over people’s money to private players who have nothing but their vested interest.
Although past strikes and attempts to halt privatization have been unsuccessful, the umbrella body of nine unions including the AIBEA and AIBOC – United Forum of Bank Unions (UFBU) has proposed going on strike on February 4, either during the lunch hours or after office hours.
Bad banks and more FDI in insurance is a bad idea say unions
The idea of bad bank or Asset Reconstruction Company (ARC) to house non-performing assets (NPAs), according to the AIBEA, will only remove corporate defaults from the books and not fix the underlying issue. Bad banks can create a moral hazard, according to a number of experts.
The decision of government to increase the FDI cap in the Life Insurance Corporation of India (LIC) from 49% to 74%, has also displeased the unions as they believe that such a move would give controlling stake in insurance companies.
While the names of two public sector banks have not been specified, the the most likely candidates are Bank of Baroda (BoB) and Punjab National Bank (PNB) according to the analysts.
The balance sheets of both banks has been extended through merging with smaller public sector banks. PNB took on United Bank of India and the Oriental Bank of Commerce, while BoB absorbed Vijaya Bank and Dena Bank. NITI Aayog, in month of July last year recommended the privatisation of UCO Bank, Punjab & Sind Bank and Bank of Maharashtra.
‘Disinvestment poses a threat to the dominance of PSBs’
The disinvestment will weaken the India’s goal of self-reliance as the helm of one of the biggest firms will be given to private sector and make it dependent on foreign capital. Also, the unions said that it were these PSBs who kept the Indian economy insulated from the 2008-09 financial crisis, and more private players in the sector could inject instability.
Down from 27 PSBs in 2017, to 12 now, these banks collectively contribute to around 60% of banking in the market.
Citing how instrumental PSBs have been in the implementation of government schemes like the Jan Dhan Yojana and MUDRA, unions say that any proposal of for privatisation of public sector banks is retrograde, ill-conceived and thoroughly inimical to the national interest.
Due to big-ticket corporate defaults, PSBs have often been criticised for accumulating bad-debt dues, eventually leading to massive haircuts through the debt-recovery channel. Despite that being true, PSBs have been able to register positive operating profit said AIBOC.
AIBOC said that the decision of privatisation for public sector undertakings, especially in the times of severe recession caused by the COVID-19 pandemic is unfathomable. Also, the unions say that divestment plans will only serve the interests of corporates with a lot of debt.
AIBOC has warned against any step of privatisation, dilution of government equity or further mergers and amalgamation of public sectors saying that it would face stiff resistance. Instead, it proposed that the policy discussion on the ways and means of reforming and strengthening the public sector banks should be initiated by the Union government.