Bank unions strongly oppose divestment, a bad bank and threaten to strike

Bank unions strongly oppose divestment, a bad bank and threaten to strike
Banks are threatening to go on strike if the government moves forward with its plan to disinvest public sector banks and Life Insurance CorporationBCCL
  • The All India Bank Officers’ Confederation (AIBOC) and the All India Bank Employees Association (AIBEA) are not on board with the Indian government’s plans to disinvest stake in banks.
  • According to them, selling government stake in public sector banks and Life Insurance Corporate (LIC) would threaten the stability of the sector.
  • Both organisations are threatening to strike if the government moves forward with its plans as announced by Finance Minister Nirmala Sitharaman during the Budget 2021-22 on February 1.
Banking unions aren’t happy with the government’s plans to divest stake in public sector banks (PSBs). The All India Bank Officers’ Confederation (AIBOC) released a harshly worded statement opposing the announcements by Finance Minister Nirmala Sitharaman during the Budget 2021-22.

“Four officers' organisations representing the entire fraternity of officers in the banking industry deeply deplore and resolutely oppose the proposal of the Honorable Finance Minister Nirmala Sitharman in Union Budget 2021, which propose the privatisation of two public sector banks and one general insurance company,” read the statement.

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The All India Banks Employees Association (AIBEA) — the largest trade union of bank employees which consists of officers as well as clerical staff — is also against PSB privatisation.

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“Privatising them means handing over the people’s money to private hands with vested interest,” it said in its own statement, warning of possible strikes.

The United Forum of Bank Unions (UFBU) — an umbrella body of nine unions including the AIBEA and AIBOC — has proposed going on strike on February 4, either during lunch hours or after office hours. However, past attempts and strikes to halt the privatisation of public sector banks have been unsuccessful.

Bank unions strongly oppose divestment, a bad bank and threaten to strike
Employees of Allahabad Bank demonstrate during an all India bank strike called by United Forum of Bank Unions in Patna in 2017 against privatisation of government banks and demanding implementation of Parliamentary CommitteeBCCL

Bad banks and more FDI in insurance is a bad idea say unions
The AIBEA is also against the idea of a bad bank or Asset Reconstruction Company (ARC) to house non-performing assets (NPAs). According to them, the idea will only remove corporate defaults from the books, not fix the underlying issue. A number of experts too believe that a bad bank could create a moral hazard.
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Furthermore, the unions are displeased with the government decision to increasing the cap of foreign direct investment (FDI) in the insurance sector from 49% to 74%. This will give foreign companies controlling stake in insurance companies.

Bank unions strongly oppose divestment, a bad bank and threaten to strike
Members of United Forum of Bank Unions staging a protest opposing privatisation of public sector banks at State Bank of India in Bangalore in 2008BCCL

Where is the government selling stake?
The aforementioned ‘general insurance company’ refers to the Life Insurance Corporation of India (LIC). While the names of two public sector banks have not been specified, analysts believe the most likely candidates are Bank of Baroda (BoB) and Punjab National Bank (PNB).

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Both these banks have seen their balance sheets extended with the merging of smaller public sector banks. BoB absorbed Vijaya Bank and Dena Bank. PNB took on United Bank of India and the Oriental Bank of Commerce. In July last year, NITI Aayog recommended the privatisation of UCO Bank, Punjab & Sind Bank and Bank of Maharashtra.

Bank unions strongly oppose divestment, a bad bank and threaten to strike
Employees stage a protest in support of the two-day nationwide strike against the Privatisation of IDBI Bank and demanded that stringent measures should be taken to recover the Bad Loans on 10 August 2018BCCL

‘Disinvestment poses a threat to the dominance of PSBs’
The unions believe that disinvestment proposals will weaken India’s self-reliance and make them dependent on foreign capital and the private sector.

India now has 12 PSBs, down from 27 in 2017. They collectively contribute to around 60% of banking in the market.
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Balance sheetPercentage of ownership by public sector banks
Deposits64%
Loans and advances60%


Unions believe that more private players in the sector could lead to instability. “The dominance of public sector banks insulated the Indian economy from the consequences of the 2008-09 financial crisis,” the unions’ justify.

‘Government needs public sector banks to implement its policies’
AIBOC also asserts that government schemes like the Jan Dhan Yojana and MUDRA have been successful because of PSBs and their rigorous implementation.
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During the pandemic, the unions say that PSBs were instrumental in implementing measures to provide liquidity and fiscal stimulus. “We consider any proposal for privatisation of public sector banks is retrograde, ill-conceived and thoroughly inimical to the national interest,” said the statement.

But, what about the rapidly increasing bad loans?
PSBs have often been criticised for accumulating bad-debt dues to big-ticket corporate defaults. This leads to massive haircuts through the debt-recovery channel.

AIBOC explains that despite that being true, PSBs have been able to register positive operating profit.
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“In this backdrop and at a time when the national economy is still reeling under the impact of a severe recession caused by the COVID-19 pandemic, we cannot fathom why the Union gGovernment is keen on the privatisation for public sector undertakings in general, and PSBs in particular,” it said.

The unions also say that the divestment plans will only serve the interests of corporates with a lot of debt.

“Any step towards privatisation, dilution of government equity or further mergers and amalgamation of public sectors would face stiff resistance, not only from our organisation but also from all the major stakeholders,” warned AIBOC asking the government to retract its proposal.
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“The Union Government should rather initiate policy discussion on the ways and means of reforming and strengthening the public sector banks,” it proposed.

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