Ineffective remedy

The latest round of public sector bank (PSB) mergers — the third since 2017, may help the merged banks cut their operational expenditure and improve the bottom line but the initiative seems to have come at a wrong time. The merger of ten PSBs into four may make a 30,000-plus employee surplus if the experience of the merger of associate banks with SBI is any indication. Such loss of jobs in the midst of an economic recession is bound to impact the overall market demand badly, leading to further job cuts in various other sectors.

It is too early to predict how such a scenario will help revive those merged PSBs — except for cutting into costs on account of employees' salaries and rationalising physical infrastructure like merging local branches, ATMs, etc. Hopefully, Finance Minister Nirmala Sitharaman's wish that the merger would help the banks manage the capital more efficiently will come true. This amalgamation is based on the intensity of bad loans and regional factors. It is not clear why some public sector banks such as Bank of India, Central Bank of India, Indian Overseas Bank and Bank of Maharashtra, to name a few, were left out of the mega-merger plan. For now, they will continue to operate separately as before.

Going by the impact of the merger of SBI's five small associate banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank – with the State Bank of India on April 01, 2017, there is no reason to believe that the latest bank merger will be painless for the employees. Within only two-quarters of its consolidation, SBI witnessed a massive layoff in the staff strength as the country's No.1 bank added 6,847 branches, taking its overall headcount up to 23,423 branches as of June 2017.

Post-merger, SBI laid off about 10,584 employees within six months. The staff strength came down to 2,69,219 as of September 2017 compared to 2,79,803 in March 2017. This is despite the fact that SBI's former chairperson, Arundhati Bhattacharya made it clear before consolidation that SBI may relocate some branches of its associate banks but none of them will be shut down to assuage the staff. Bhattacharya also said that "No employee of the associate banks would be asked to leave," adding that "branches will also not be eliminated after the merger".

The SBI, however, laid off 6,622 employees in Q1FY18 followed by another 3,962 employees in Q2FY18. This was quite natural given that it did not make a business sense for SBI to operate two branches (the other belonging to its pre-merger associate bank) that might have been located as close as within 100 metres. This was a big layoff compared to removal of just 3,197 employees recorded during the entire fiscal of 2015-16 (FY16). It may be further noted that a total of 11,382 employees took SBI's retirement plan between April-September 2017. Thanks to the lower number of employees, SBI's staff expense dropped to Rs 7,703 crore in Q2FY18 from Rs 7,724 crore in the preceding quarter and Rs 8,300 crore in the corresponding period of the previous year. However, following the merger, many old depositors with SBI's associate bank branches shifted their accounts or opened new accounts with nearby private banks such as HDFC, ICICI, Axis, Kotak Mahindra, Yes Bank, IndusInd Bank, IDFC Bank and Bandhan Bank.

Employees of merged PSBs seem to be without recourse regarding the development. The All India Bank Employees Association (AIBEA) may have opposed to the government's PSU Banks merger decision, but it will not alter the situation. AIBEA general secretary C H Venkatachalam had earlier said that there is no evidence that the merger of banks would strengthen the banks or make it more efficient. He did not see any miracle happened to SBI after the merger of five associate banks with it. "On the other hand, it has resulted in closure of branches, increase in bad loans, a reduction of staff and a reduction in business."

According to Venkatachalam, the bad loans of five associate banks of SBI as of March 31, 2017, were about Rs 65,000 crore and that of SBI about Rs 112,000 crore, totalling Rs 177,000 crore. After the merger, however, SBI's bad loans in 2018 increased to Rs 225,000 crore. According to the 2017 Retail Banking Satisfaction Study by the global marketing firm JD Power, 46 per cent of respondents whose banks went through a merger within the previous 12 months reported they would definitely switch banks. An earlier study by the Deloitte Centre for Banking Solutions found that of those who did move to another lender, a surprising 36 per cent said they did so for emotional reasons.

However, the consolidation of PSBs, especially those with high NPAs and slow growth, itself may not be a wrong idea. Nobody denies that India needs a well-run banking system, offering customer friendly services, for its growth. Unfortunately, the government and the PSB management are doing little to win customers' hearts by changing the work culture. Compared to the business modules of private banks, the operational style of PSBs is simply obnoxious where depositors and small creditors are treated rather shabbily. Personal banking services are rare and a new generation of customers are increasingly moving towards private banks where they feel more at home. According to the latest RBI annual report, PSB accounts are also more fraud-prone than their private sector counterparts. The amount involved in bank frauds has gone up by a whopping 73.8 per cent. More than consolidation, PSBs need a cultural change to attract businesses which have multiplied in recent time and win over the sentiments of customers. PSB mergers without a cultural shift will be a futile exercise.

(The views expressed are strictly personal)