Govt move to create big banks through mergers risky, says union

The government’s bid to consolidate public sector banks (PSBs) through mergers to create big banks is fraught with risks as many big private banks globally, including in the US, have failed, cautioned a trade union body.

Referring to the experience of failure of big banks worldwide, All India Bank Employees’ Association General Secretary CH Venkatachalam said: “The myth that big banks are automatically strong banks has since been broken by such huge bank failures. But unfortunately, the government is pursuing this fatal policy, risking the hard-earned savings of the common people.

“Big banks would mean taking bigger risks which our country can hardly afford. Hence, we must oppose these pursuits of mergers and amalgamation of banks.”

He alleged that the government is also weakening PSBs by allowing private corporates and business houses to start their own banks, and licences being given to open payments banks and small (finance) banks.

The whole idea, claimed Venkatachalam, is to emaciate PSBs and encourage private sector banking.

“In a developing country like ours, weakening public sector banks and focussing on private banks will be disastrous and suicidal. Hence, we need to continue our struggle…. and defend public sector banks at all cost in the national interest,” said Venkatachalam.

He highlighted that on the one hand the government is rationing capital to PSBs in view of scarcity of resources, and on the other it is ready to allow the banks to convert huge loans given to corporates as equity capital in those defaulting companies under the debt to equity conversion scheme.

Underscoring that there is nothing extraordinary about the government extending $17 billion worth of capital in the last seven years, he said in every country when a private bank collapses, the government uses taxpayers’ money to rescue the bank by capitalising these banks.

In the US, the government has capitalised banks to the extent of $2,270 billion after the 2008 global financial crisis.

In China, the government helped the banks with capital to the tune of more than $120 billion when they faced problems. Two years ago, in Russia, the government pumped $15 billion into banks. In Greece, it was $63 billion and in Spain $51 billion when their banks were in trouble.

According to Venkatachalam, the only main challenge our banks are facing today is the alarmingly increasing bad loans, decorously called NPAs (non-performing assets).

“These have crossed all acceptable proportions and have reached dangerous levels, threatening the very sustainability and viability of our banks. Bad loans are today eating into the vitals and credibility of our banking system.

“But everyone knows that the main share of the burden of this danger is due to corporate defaulters who are taking our banks for a ride,” he said.

Banks are earning very good operating profits but are bleeding with net loss due to provision for bad loans (NPAs).

“Obviously, 95 per cent of the profits earned by the banks are going towards provisions for bad loans of corporates and big businesses. It is nothing but an open loot of people’s money. To cover up these losses, customers and banking clients are made scapegoats by hike in all types of service charges, fees and penalties.

“Why should the general banking customers pay for the sins committed by the big defaulters? How can the banks punish the innocent customers? It is high time the government took stringent measures to recover these bad loans and take bold action against these big defaulters,” said the trade union leader.