Modi govt gameplan over 3 banks merger 'revealed'; this man fumes
The decision by government, which owns majority stakes in 21 banks, to merge the three banks will first need to be approved by each of the bank's board of directors, and then an amalgamation scheme would be prepared.
In a bid to tackle pile of bad loans plaguing the banking sector and revive credit growth, the government has ordered state-run Bank of Baroda, Dena Bank and Vijaya Bank to be merged. Finance Minister Arun Jaitley termed the move to be a "major economic, commercial decision" saying that banking sector reforms are a major plank of Prime Minister Narendra Modi`s administration to revive lending, which has slowed down as lenders struggle with bad loans.
The decision by government, which owns majority stakes in 21 banks, to merge the three banks will first need to be approved by each of the bank's board of directors, and then an amalgamation scheme would be prepared. The process reportedly would need the approval of the cabinet of ministers and both the houses of Parliament. This is likely to completed by the end of March 2019.
The proposed merger is the latest in a series of measures to quickly cut the pile of bad loans in the banking sector, but the official unions of these banks have expressed apprehension over the exercise. The All India Bank Employees Association (AIBEA) General Secretary, C H Venkatachalam, opposed the decision to merge Bank of Baroda, Dena Bank and Vijaya Bank and said that the need of the hour was tough measures to recover bad loans.
He said, "The total bad loans in Bank of Baroda, Dena Bank and Vijaya Bank is around Rs 80,000 crore. A merger of these banks will not help to recover the bad loans. On the other hand, the focus will be shifted to merger issue and that is the game plan of the government."
He added, "There is no evidence that merger of banks would strengthen the banks or make it more efficient."
Citing the example of the merger of five associate banks with SBI, he reportedly said, "it has resulted in closure of branches, increase in bad loans, reduction of staff, reduction in business. For the first time in 200 years, SBI has gone into loss."
According to him, out of 21 public sector banks, 19 were in loss due to bad loans and provisions for bad loans.
As on March 31, 2018, these 21 banks collectively had posted an operating profit of Rs 155,565 crore, but due to provisions for bad loans of around Rs 270,000 crore, there was a net loss of Rs 85,000 crore, Venkatachalam added.
Delhi State Bank Workers Organisation General Secretary Ashwani Rana has also opposed the decision despite the government assurance that there will be no job cuts.
Rana told PTI, "The government`s decision to merge the banks is not correct and the unions oppose it. There is no guarantee that it will benefit the banks, its employees and customers. Also, it is less likely to impact the NPA as was seen in SBI`s case. It will have an adverse impact on the current employees."
He added that the National Organization of Bank Workers (NOBW) is also against this merger.
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Meanwhile, Moody's Investors Service today said that the move to merge Bank of Baroda, Vijaya Bank and Dena Bank will be credit positive as it would improve their efficiency and governance.