Business

Bank unions go beyond normal issues

— Photo: R. Ravindran

STRIVING FOR PROTECTION: Bank employees take up issues concerning the sector.

Trade union activity in the banking sector has gone far beyond usual issues dealing with service conditions of employees. Unions of both officers and employees have resisted government policies that they considered inimical to the country’s interests. One such activity — till now a largely unrecognised role — has gained prominence in the context of the ongoing financial sector crisis.

Iconic banks and financial institutions in the U.S., the U.K. and the E.U. have collapsed in the face of waning investor confidence. Only massive capital infusion of public money could help them to stay afloat. Even banks which were badly hit by the crisis but did not go under have received dollops of tax payers’ money. By many norms the banking system in the West is more ‘nationalised’ than in India. Governments there, opting for prudence over ideology, have realised that public ownership and much greater regulatory oversight alone can ensure the survival of the financial sector.

This development, as pointed out by D. S. Rishabadas, General Secretary of the State Bank of India Officers’ Association (Chennai Circle) recently (at a seminar on the financial sector crisis in Chennai), vindicates the stand of many trade unions against one facet of reform, namely, withdrawal of government ownership from banks. Trade unions have launched agitations to safeguard larger economic issues too, he said. The view was shared by G. D. Nadaf and T. N. Goel, respectively general secretary and president of the All India State Bank Officers’ Federation. The former is also general secretary of the All India Bank Officers’ Confederation.

Other related issues discussed included the government’s moves to encourage consolidation in the banking industry. The merger of State Bank of Saurashtra with SBI has already taken place despite trade union opposition. The All India Bank Employees Association (AIBEA) has organised protests across the country to stop banking reforms forthwith.

If India has been spared the worst consequences of the global financial crisis, a large part of the credit should go to the prudent policies followed by the government and the RBI. It may appear to be big news now but there were very few influential voices in those days that saw in the alleged conservatism of public policy the seeds of a safe domestic financial system. That is because in the 1990s (when economic reform started) and even more recently no one could foresee a financial crisis of the current magnitude materialising and that too imported from the advanced U.S. financial sector. So what saved us? Is the prudent conservatism the outcome of a conscious policy choice?

A few points need clarification here. Economic reform, liberalisation and globalisation mean different things but in the context of India’s financial sector, they have a few common connotations. One, the extent of government involvement. Commercial banking and insurance have always been dominated by the public sector. Since 1969 — after bank nationalisation — public sector ownership became particularly pronounced.

In practice, reform in India has come to imply a range of policy choices involving a larger role for the private sector: at one end is privatisation or handing over the majority stake as well as control of government owned banks to the private sector. Such a course was out of the question in the Indian context although such ideas kept floating from time to time. It was only recently that some ‘high level’ committees suggested such a course of action. Their reports were released days before the crisis erupted in the West. Surely a case of extraordinary bad timing.

The government continues to retain majority stake in all the PSBs, most of which have accessed the share market. This has certainly saved Indian banks from slipping into a panic induced crisis.

Traditional arguments to lower the threshold for government ownership include the need for raising additional capital to comply with new regulatory norms. The NDA government had sought to reduce government stake to a third of a PSB’s paid up capital but simultaneously wanted the government character to be retained. Ideological justification for privatising the PSBs has always looked weak. After the crisis it is non-existent. Bank trade unions must be credited with not only providing the ideological opposition but also including it in the trade union agenda.

There are other defining characteristics of the reform era such as advent of competition and improving the financial health of the government banks but none of these has been as controversial as the one suggesting withdrawal of government from the PSBs. Can trade unions do more now that their stand on public ownership has been vindicated (though still unappreciated)?

Here again, the global financial crisis can be a guide. In the name of financial innovation, banks in the West introduced highly complex instruments which, as they turned out, even their creators did not understand. In India, financial innovation, by whatever name called, may not be at levels that are causing so much distress across the globe. But there are signs that Indian banks are trying to catch up. In ‘frontier’ areas, Indian banks, especially government ones, have been dabbling in areas outside their traditional domain.

The interface between commercial banking and investment banking has caused enormous pain to Indian banks. Bank managements in their eagerness to report higher profits have forced their institutions to undertake such activities without providing a framework or, equally important, a support mechanism if things go wrong. Trade unions already have a record in educating their employees. The time is right for them to go farther and caution their members (employees) on what could go wrong in being a pioneer.

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