Unions protest too much on mergers

Unions protest too much on mergers

They should look at how to improve banking.

Banks unions are reportedly planning to launch a protest against the proposed merger of 10 State-owned banks into four large ones. Resistance from unions is not unexpected, but the view that the plan lacks any rationale and will not help reduce the problem of bad loans is blinkered. A few large banks that can lend to large corporates would be in the interest of the Indian economy, subject to their meeting tougher loss-absorbing capacity norms. Rigorous governance reforms must go hand in hand with the proposed mergers to improve the health of banks. The government has sought to allay the fears of unions, saying there would be no retrenchment. Mergers would lead to re-deployment, relocation of staff and is likely to reduce career opportunities for some in the merged entity. Three HR heads, for example, will not be needed when two weak banks merge with a stronger entity. Issues such as cultural fit remain.

An India Ratings and Research report says challenges are likely to be bigger this time, as, in some cases, banks of almost equal size are being amalgamated, while in some other cases, the amalgamating bank’s financial health is also equally under pressure. It forecasts a likely increase in credit costs and impact on credit growth in the near term as focus will shift to the integration of information technology systems, treasuries, employees and branches. Bankers must brace themselves for retraining to acquire new skills. The need is to ensure that bankers are extra alert in their credit appraisals and assess the loan viability in a professional way. This calls for banks to be given full operational autonomy. Empowering the board, strengthening the board committee system and paying market-linked salary to the chief risk officer are welcome. This would pave the way for market-linked remuneration structure for other senior bankers.

The unions should appreciate that old-style uniform salaries across public sector banks for staff below the rank of general manager are history. Banks that do well will pay their employees better, and that is how it should be.