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

  • The All India Bank Officers’ Confederation (AIBOC) and All India Bank Employees Association (AIBEA) disagree with the Indian government’s plan to divest its stake in banks.
  • According to them, the sale of the government’s stake in public sector banks and Life Insurance Corporate (LIC) would threaten the stability of the sector.
  • The two organizations threaten to go on strike if the government goes ahead with its plans announced by Finance Minister Nirmala Sitharaman in the 2021-2022 budget on February 1.

The banking unions are not satisfied with the government’s plan to sell its stake in the public sector banks (PSB). The All India Bank Officers’ Confederation (AIBOC) issued a harsh statement opposing Finance Minister Nirmala Sitharaman’s announcements in the 2021-2022 budget.

“Four officer organizations representing the entire fraternity of officers in the banking sector deeply deplore and strongly oppose the proposal of the Honorable Minister of Finance Nirmala Sitharman in the 2021 Union budget, which proposes privatization of two public sector banks and a general insurance company ”, read the declaration.

The All India Banks Employees Association (AIBEA) – the largest union of bank employees made up of officers as well as administrative staff – is also against the privatization of the PSB. “To privatize them means to hand over people’s money to private hands with special interests,” he said in his own declaration, warning of possible strikes.

The United Forum of Banking Unions (UFBU) – an umbrella body for nine unions, including AIBEA and AIBOC – has offers on strike on February 4, either during lunch hour or after office hours. However, past attempts and strikes to stop the privatization of public sector banks have been unsuccessful.

Allahabad Bank employees demonstrate in an all-India strike called by the United Forum of Banking Unions in Patna in 2017 against the privatization of government banks and demanding the establishment of a parliamentary committeeBCCL

Bad banks and more FDI in insurance are a bad idea, unions say
AIBEA is also against the idea of ​​a bad bank or Asset Reconstruction Company (ARC) to house non-productive assets (NPA). According to them, the idea will only remove the company defaults from the books, and will not solve the underlying problem. A number of experts also believe that a bad bank could create a moral hazard.

In addition, the unions are unhappy with the government’s decision to increase the ceiling on foreign direct investment (FDI) in the insurance sector from 49% to 74%. This will give foreign companies a controlling stake in insurance companies.

Bank unions strongly oppose divestment, bad bank and threaten to strike
Members of the United Forum of Banking Unions organize a protest against the privatization of public sector banks at the State Bank of India in Bangalore in 2008BCCL

Where does the government sell its stake?
The aforementioned “general insurance company” refers to the Life Insurance Corporation of India (LIC). Although 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). These two banks have seen their balance sheets grow with the merger of smaller public sectors. banks. BoB absorbed Vijaya Bank and Dena Bank. PNB has acquired United Bank of India and Oriental Bank of Commerce. In July of last year, NITI Aayog recommended the privatization of UCO Bank, Punjab & Sind Bank and Bank of Maharashtra.

Bank unions strongly oppose divestment, bad bank and threaten to strike
Employees organize a demonstration in support of the two-day nationwide strike against the privatization of the IDBI bank and demanded that strict measures be taken to recover bad debts on August 10, 2018BCCL

“Divestment threatens the domination of the PSB”
The unions believe that the divestment proposals will weaken India’s autonomy and make it dependent on foreign capital and the private sector.

India now has 12 PSBs, up from 27 in 2017. They collectively contribute around 60% of the banking business in the market.

Balance sheet Percentage of ownership by public sector banks
Deposits 64%
Loans and advances 60%

The unions believe that a greater number of private actors in the sector could lead to instability. “The predominance of public sector banks protected the Indian economy from the consequences of the 2008-09 financial crisis,” the unions justify.

“The government needs public sector banks to implement its policies”
AIBOC also claims that government programs such as Jan Dhan Yojana and MUDRA have been successful due to PSBs and their rigorous implementation.

During the pandemic, unions say the PSBs have been instrumental in implementing measures to provide liquidity and fiscal stimulus. “We consider that any proposal to privatize public sector banks is backward, ill-conceived and totally contrary to the national interest,” the statement said.

But what about bad debts that are growing rapidly?
PSBs have often been criticized for accumulating bad debts due to large defaults. This leads to massive haircuts through the debt collection channel.

AIBOC explains that despite this, the PSBs were able to record a positive operating profit.

“In this context and at a time when the national economy is still under the impact of a severe recession caused by the COVID-19 pandemic, we cannot understand why the Union government is keen on the privatization of public sector companies in general, and PSBs in particular, ”he said.

The unions also say the divestment plans will only serve the interests of heavily indebted companies.

“Any step towards privatization, dilution of government equity or further public sector mergers and mergers would meet stiff resistance, not only from our organization but also from all major stakeholders,” AIBOC warned. asking the government to withdraw its proposal.

“The Union government should instead engage in a political discussion on ways and means to reform and strengthen public sector banks,” he suggested.

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