New banking policies may set industry back

The lop-sided policies being pursued in the banking sector as evidenced in proposed mergers and branch closures would set it back by half-a-century, according to employee leaders.

Mergers would inevitably lead to drastic reduction of number of public sector bank branches particularly in rural areas. The much-hyped business correspondent/business facilitator model would only hasten this process.

CLASS BANKING

Once the expansion plan in rural areas is put on hold, the industry would be forced to revert to 1960s when class banking was the norm, according to Mr M. Sreenath, General Secretary, State Bank of India Officers' Association, and Mr K. Raja Kurup, General Secretary, State Bank Staff Union (Kerala Circle).

This would work at cross-purposes with the financial inclusion drive, which the Union Finance Minister and the Government at large swears by, the union leaders said in a joint statement here on Thursday.

The statement came in the backdrop of reports that the Finance Ministry has conveyed to the Parliamentary Standing Committee on Financial Sector Reforms that that the SBI envisages consolidation of all subsidiary banks with itself within the next 12-18 months.

FACING COMPETITION

To enable public sector banks face competition from the private sector and foreign peers, they need to be strengthened with a better branch network, the leaders said.

There have already been reports of proposals for closure of bank branches in the name of rationalisation. But centralisation of transactions would delay services.

There are many centres in the State where SBI and associate bank branches have been working with coherence and understanding.

The proposed merger would automatically lead to reduction in number of branches and retrenchment of staff, upsetting the status-quo.

Associate banks have followed an independent course and have also managed to achieve all parameters prescribed in regard to the capital adequacy norms and priority sector lendings.

INVALID ARGUMENT

The argument that the merger will help the size of the balance sheet upscale in terms of footprint, manpower and other resources and face global competition does not hold good since State Bank balance sheet ultimately reflects the performance of the entire group as a whole.

The evidence is that nearly two-thirds of all mergers fail to enhance overall value, value of the acquiring firm and the acquired firm put together.

Also, a bigger bank need not always have better efficiency. It is only up to a size that efficiency increases.

But beyond a certain size, the benefits of scale taper off and tend to be offset by growing complexity, the leaders observed.

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