Why Merging PSBs without Fixing Accountability Is Bad for Customers
On the face of it, we, at Moneylife, would be on the side cheering the merger of nationalised banks. Over the years, their service has been sloppy; attitude to customers uncaring (while private banks at least respond, it is a tough task getting a response even from senior management of nationalised banks); and worse, every few years, the government has re-capitalised the massive bad loans that they built up through corruption and political coercion. Also, it is not as if public sector banks (PSBs) have any empathy for the poor, the retired and the old. 
 
We, the people, have paid the price and we are tired of it. Bad loans (called NPAs—non-performing assets) had reached the stage where they threatened the very existence of nationalised banks. So, a reduction in the number of banks from 26 to 19—with the merger of State Bank of Bank of India’s (SBI’s) sister banks and, now, with the merger of Bank of Baroda (BoB), Dena Bank and Vijaya Bank—would, logically, be a development that customers would welcome. 
 
Unfortunately, in the last year of its term, the Modi government has, once again, rushed into a major policy decision without adequate public discussion or addressing any of the structural issues that have destroyed PSBs over the decades. 
 
For one, the government has done nothing to ensure that the merged entities have more freedom (from political meddling), better accountability or increased responsibility. There is nothing to suggest that the merged entity will not begin to pile up bad loans all over again, needing another bailout at public expense a few years down the road. 
 
It hasn’t even explained to us why a mere merger of three banks will lead to “a substantial rise in customer base, market reach, operational efficiency and wider bouquet of products and services for customers,” as claimed by Rajiv Kumar, secretary, department of financial services in the Union ministry of finance. After all, the only possible savings would be in rationalising of branches. But, since the jobs would be protected, even those savings would be minimal.
 
Does Size Matter? 
Contrary to government propaganda, the move towards larger banks is fraught with risks, as was evident in the 2008 global financial crises. They had to be bailed out with taxpayers’ money. And, yet, while speaking at Columbia University in 2017, RBI (Reserve Bank of India) governor Urjit Patel had backed bank mergers saying, “The Indian banking system could be better off if some public sector banks are consolidated to have fewer but healthier entities, as it would help in dealing with the problem of stressed assets.” 
 
He claimed that “there were cooperative banks and micro-financial institutions to provide community-level banking,” but did not mention that these fail with alarming regularity. There are 1,618 urban cooperative banks in India, a third of them in Maharashtra and the rest in 10 other states. The RBI governor is well aware that the record of supervision and governance of these banks is abysmal since they are, often, politically controlled. 
 
Scores of small banks have been shut down over the past 10 years with a small amount of insurance being the only consolation for those who lost their savings. In fact, the NDA government is the first to have bailed out and infused over Rs2,300 core in 23 unlicensed cooperative banks within a few months of coming to power. So much of better accountability! 
 
How does a merger make banks healthier, unless there is better supervision and accountability? In India, the unravelling of Infrastructure Leasing & Financial Services (IL&FS) shows that the regulator and the government do not even have a grip on the reckless growth and borrowings of designated ‘systemically important’ institutions. Even today, as the drop in NAVs (net asset values) of mutual fund schemes exposed to IL&FS’s Rs1.2lakh crore borrowing begins to hurt investors, the government has maintained a stunning silence.  
 
Deliberate Weakening of PSBs 
India’s nationalised banks have been in a constant state of turmoil in NDA’s four years. The intense pressure to open Jan Dhan accounts and dealing with demonetisation took up the first two years. Dealing with bad loans, increased fraud and, in some cases, having their core lending operations stopped by prompt corrective action (PCA) by RBI has occupied the rest of their time. 
 
Meanwhile, many PSBs were deliberately kept headless, as has been evident from the sudden appointment of as many as 10 managing directors/CEOs on 19 September 2018. Meanwhile, no appointments of directors representing employees and officers have been made on bank boards, eliminating a key check on the activity of senior bankers. 
 
At the same time, all the ugly practices of the past continue unchecked. A small list of these is: political appointees on bank boards; employment of politically connected persons as internal auditors; dubious centralised purchase of bank equipment though select companies at exorbitant prices (many banks have been dumped with three-seater benches purchased centrally; under the previous government all signage of bank branches was centralised. In both cases, the costs have increased significantly).
 
Reducing Options 
While the government has been harping on the need for fewer, but larger, banks, the fact is that customers do not have much of a choice. Over the past 25 years, the number of banks has been reducing steadily. The entry to the business is tightly controlled by RBI, and licences are entirely at its discretion. 
 
All, except the six new private banks allowed in the 1990s, have been bought over or merged; scores of smaller cooperative banks are shut every year after they fail; and; now; the big PSBs are being systematically weakened and merged. On the other side, a few small banks have been licensed apart from just four new universal banks over 20 years. 
 
This has reduced, rather than enhanced, depositors’ options. Consequently, there is no incentive for branches to compete for funds by offering lower charges or better services. If that were not enough, the goings on at some of the larger private banks also has depositors worried. 
 
RBI has refused to extend the tenure of the CEO (chief executive officer) of Axis Bank and Yes Bank. ICICI Bank remains mired in controversy made worse by the board’s unwillingness to restore credibility. The reduction of options for consumers will mean fewer working ATMs, fewer bank branches and increased cartelisation of fees and charges.
 
And don't forget all banks continue to earn profits through the same strategy of selling third-party insurance and financial products either through blatant mis-representation or downright cheating.
 
Poor Grievance Redress 
Mis-selling of third-party products, especially to less financially literate depositors, has become so rampant that bank unions have been writing to management to stop the practice. Meanwhile, losses and rip-off through digital transactions have increased dramatically, while grievance redress has turned abysmal. 
 
Moneylife Foundation, which works at grievance redress, finds that RBI’s customer services department is unresponsive and inaccessible to consumers. The Banking Ombudsman is erratic and, often, rules in favour of banks. Although RBI has clear and stringent rules about preventing harassment of customers due to digital fraud, in practice, customers are given a royal run-around. 
 
If 78% of all deposits continue to be with banks, despite their poor service, it is because of the implied sovereign guarantee that their deposits are safe. Depositors already pay a high price for this privilege. Merging nationalised banks without putting in place accountability is bad for depositors, especially when the government has plans to shrink this space even further by merging United Bank, United Commercial Bank and Allahabad Bank and a few other combinations. 
 
 
Comments
Liju Oommen
4 years ago
One day all these big banks will go down and take the economy down with it.
Ashok Senniappan
4 years ago
A God sent oppurtunuty for all the three Banks senior level executives to escape
from being prosecuted for accounts become turning bad during there tenure and escape from the country like RBI Dy Governor Dr,K,C Chakroborthy is int it ?
dhingra
4 years ago
Fixing of Accountability is possible only when the top brass does not have any Godfather or are not supported by their Godfathers due to one or the other compelling reasons. Top posts are more or less politically oriented. The top brass is generally the blue eyed guys of the politicians or the appointing bodies with the backing of the power wielding politicians. As per my views, laws are made only for the punishment of hapless common man, but not for the favourites of Godfathers or the law makers themselves.

So, nothing seems to be unusual, if the offenders are not made accountable.

A PERTINENT QUESTION ARISES, WHY THE CEOs/MDs/ DIRECTORS OF THE PSU ARE NOT PICKED FROM THE MOST EFFICIENT PUBLIC LIMITED COMPANIES, WHY IRRESPONSIBLE BUREAUCRATS WITH NO STAKE OF THEIRS IN THE PUBLIC FUND COMPANIES? Even if bureaucrats are favoured to hold such lucrative posts, why they are not made to buy sufficient quantity of shares of such companies/ financial institutions to which they are made to hold controlling positions?

Ramesh Jaradhara
4 years ago
Merger is welcome if efficiency is ensured. PSU bank employees are indifferent towards customers because of PSU status of the bank, that means the bank is nobody's property. They lack interest and dynamism towards their service. The perception is that they are govt. employees, their status is secured whether they offer good service or not. The most important aspect in the face of merger is to ensure the service first motive and dynamism among employees. Otherwise the merged entity will again fall in the same category.
dhingra
Replied to Ramesh Jaradhara comment 4 years ago
Efficiency and PSUs are two opposite poles, which cannot meet. Expecting efficiency is just a day dreaming till the top brass is compelled to hold the controlling shareholding stakes in the PSUs to compel them to make the PSU company a real profit centre. Neither they render efficient service to the public, nor ensure financial viability and stability of the organization the top brass holds.
Dayananda Kamath
4 years ago
Since 2005 I have brought to the notice of every authority that matters up to President of India about irregularities in banking. But non bothered to act but supported the management in harassing and punishing officers who brought out these irregularities,as part of discharging his duty as internal auditor. And the icing on cake is Judiciary. The learned judge of Karnataka High court ordered" since the officer is stickler for rules, he can be given compulsory retirement" so that the executives can continue with their irregularity with impunity. And every Govt authority is protecting this rogue bankers by their various schemes, just to fool the public that they are concerned and taking action.
This merging is also a big scam, so that inconvinient entries can be clubbed in ghost suspence entries of branches without any details and can be forgotten for ever as non is bothered and auditors also at the most comment no details available for these entries and remain unreconciled.
Even now in every branch of every bank where any type of merger of branches, banks, or change of operating platforms has happened you can see large account heads with lakhs and crores of rupees balance outstanding without details for decades.
This was brought to the notice of PMO wide Pmopg/e/2018/0265134 dtd4/6/18 and has been closed without any action. You can see the details on my Facebook post.
So nothing will improve as long as concrete action is initiated against all the culprits as well as their protectors misusing the administrative powers vested in them.
dhingra
Replied to Dayananda Kamath comment 4 years ago
Until direct recruitment of the executives for the Group A posts is not banned, Indian people cannot expect any efficiency and financial stability of the organizations from such officials, who do not have any grass root level participation and experience of work, but are imposed over the heads of even the most experienced practical officials in the Government & PSU sectors. Anyone pointing out their inabilities and incapacity are surely to doom due to their controlling positions. Further, when PMO acts merely a forwarding authority, they cannot be expected to give any justice to the complainant. The system cannot be expected to be changed when even the criminal record holders are elected as law makers and sent to Parliament and the State Assemblies.
Amit Jain
4 years ago
The Govt. tried to increase accountability and supervision in revenue collections, and succeeded quite a bit. But instead of praises, it only drew criticism, including from you, for tex terrorism and for putting ordinary people to much inconvenience. Wonder what levels this unfair criticism would reach to if the Govt. stops using taxpayers' money to rescue banks, and letting millions lose their savings and deposits. As for putting more supervisions, criticism will be under the garb of not allowing anything to function independently, of not letting markets operate freely and of stifling fresh investments. One has to realise that it has been an extraordinary tightrope walk over the last 4 years. Directionally, the country is progressing fine. Whether it is fast enough is subjective.
B. Yerram Raju
4 years ago
There is no opportunity for the stakeholders to discuss such move. Bank Boards are Thumb Impressionist Boards. The only time the Directors open their mouths is when they have to eat snacks. Corporate Governance in PSBs is in peril. HR issues are never brought to the table for discussion and they are all faith accomplice. Diverse cultures they have to live with post merger pose severe problems and they impact the service adversely. Several branches opened post nationalization to serve the rural areas through Lead Bank Scheme get wounded up and customer choice for banks would be a thing of the past. Profitability post merger has eroded and this does not concern the government. Three past governors: Y.V. Reddy, Subba Rao and Raghuram Rajan on one occasion or the other voiced against hasty consolidation ahead of cleaning up their bad balance sheets.
SuchindranathAiyerS
4 years ago
Public Sector Banks. The leit Motif of Modi's Bharathiya Jhamela Party since 2014 has been to champion all previous failed policies. Here, Jet Lee's Babudom has combined small head aches into big head aches.
PRAKASH D N
4 years ago
The merger throws a number of issues :
Where is the Corporate Governance when Govt declares merger and the Board's are now only to comply with the decision.
Second, what will happen to recovery of NPAs. Who will be accountable for recovery? What about fixing accountability on those who thrown money knowing fully well that the account is already NPA?
What is the action plan to prevent "phone banking" when PSBs are remote controlled by Finmin.?
Where are the reforms in selection of MDs, Chairmen and Directors. Still it is subject to political maneuvering as BBB selected panel is subjected to the same old system of procees during UPA.
What will happen to financial inclusion. By the merger about 500 branches are likely to be closed. It is going to be Financial Exclusion and lesser choice to banking public.

High time Govt. walk the talk of transparency, financial inclusion and so on.
Suketu Shah
4 years ago
What else can you expect from a man who has severe health problems and cannot stand for 1 hr per day.This is the kind of consistent work he has been doing since May 2014 as Finance Minsiter.
Arun Adalja
4 years ago
after merger they remove some employees or sent them to some awkward places which is far from their native place.
Mohan Krishnan
4 years ago
Music to the ears of Banksters, Auditors, Crony Capitalists and their Bureaucratic and Political Neta friends and FIIs.
SRINIVAS SHENOY
4 years ago
Unless and until professional management of banks is put in place, and the staff, management and the auditors are held liable for misfeasance, the customers and the exchequer are bound to pay the price for misgovernance.
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