Last month, when the finance minister announced the big bank merger it caused quite an upheaval in the banking sector, especially among the employees. Although the Government has issued statements reassuring the public and the employees that no jobs will be lost and this will make the banks stronger, the workers are not convinced.
The decision to merge smaller banks into larger units was actually started during the UPA government’s tenure, but was implemented by the BJP government. The first instance was the merging of SBI’s five associate banks with the PSU giant. Similarly, last year, the merger of Vijaya Bank and Dena bank with Bank of Baroda was proposed and finally approved by all three banks this January. In both instances, the country has seen the repercussions of the decisions, which may be one of the factors causing unease among employees across the country.
Ramamurthy Balaji, general secretary, SBIOA, Chennai circle, talked about the cause behind the workers’ continued unrest at the decision.
The thought behind the Centre’s decision was to create big banks “with an enhanced capacity to create credit…with a strong national presence and global reach,” as explained by our finance minister, during her speech. However, the unions are saying that the rationale behind this decision is flawed.
Bigger does not equal stronger
Merging two weak banks to create a strong one or merging a strong bank with a weak one will not create a strong entity by itself. Instead, it will create a weak bank or a less strong bank. This is one reason why the rationale behind the decision does not hold. To add to that, the bigger the bank, the bigger the risk of falling when something goes wrong.
Moreover, the merger will see the closure of many branches, as the branches under the newly- merged lender will see overlap. Thousands of employees will be left with the decision to either move to the location of the new branch or to ‘disassociate’ themselves from the new emerging banks, because of the impending reorganisation of the workforce. Since the government has assured that no jobs will be lost, the new entity will not be able to trim its workforce.
‘Disassociate’ is exactly what they did last year, during the Bank of Baroda merger, where Vijaya Bank and Dena Bank offered the option to disassociate, under which employees could forego the remainder of their service period and be paid pensions as per their existing pay scales. Employees will feel the pressure to relocate, and will have to quit. Even though the government says no jobs will be lost, it cannot guarantee it.
“It is a lengthy process and merging different technological platforms poses a problem for customer service and smooth transactions”
Integration of IT services and HR
The integration of technology services will be one of the key challenges during the merger.Every bank uses a specific technological platform for its core banking solutions, which is again customised according to its needs. The government announced the merger partners according to their IT compatibilities and not according to their geographical synergy. However, even so, integration is easier said than done. Let us take an example.
A year on now, Bank of Baroda continues its attempt to integrate its IT systems. According to numerous media reports, the Bank is still working with three separate core banking systems. It had already stipulated a 12 to 18-month timeline, which it would take to migrate to a newly unified core banking system. “It is a lengthy process and merging different technological platforms poses a problem for customer service and smooth transactions”, says Balaji.
Second, integration of human resources issues will be another massive obstacle. Many of these banks face staff shortages and the ones who are going to leave on account of the merger will further add to this shortage. Recruitment is not at par with this high vacancy. The idea from the Centre is that digitisation will help manage this shortage. However, to do that, employees will have to be trained accordingly in the digitisation process so that they can keep the system running. Coupled with the IT integration, this will require massive training which, with the already shorthanded staff, is going to be difficult. Further, it may impact customer service as well.
Other big little concerns
Along with the IT and HR integration, the newly-merged entities will have a lot to accomplish. Due to the merger, a lot of branches and ATMS will have to be closed owing to overlaps. These have to be identified and shut down. A similar situation occurred during the SBI merger when 7000 branches had to be shut down and thousands of employees lost their jobs.
With lesser number of branches catering to the same group of customers, the quality of services mayt also take a hit.
Another concern is customer integration. The aim is to provide a seamless transition for the customers, where fresh banking products including their cheque books, passbooks, Indian Financial Systems Codes (IFSC) and Magnetic Ink Character Recognition (MICR) codes are reworked and provided afresh.
Customer integration seems like an obvious process but it is difficult to pull off and may take up to two years to fully materialise.
While the priority of the Government should be to revive the economy, for the next one to two years, the major PSUs will be tied up with merger activities. While it does not provide a solution to the slowdown crisis, it certainly takes the attention away from it.