Why were banks on strike for two days of this month?
Having a job in any sector owned by the government has been a dream of an average youth of the country like India. Such jobs not only are imagined to give security and stability to an individual’s life but is also seen as a status criterion. We have seen many scenarios where a girl’s family only gives her hand if her partner-to-be has some kind of a regular government job. Government jobs are seen as a pinnacle of success in India.
But what if you wake up one fine day and come to know that your job is not “government” anymore and has been privatized to a private owner. The same has been done by the NDA government for the past many years. Year after year many of the public sector units (PSUs) and the government owned companies are getting privatized in what the current finance minister terms “Monetization Plan” or “Disinvestment Plan”. Basically, according to this plan the government sells out partial or whole of its shares in the companies to some private entities in return for money. The most recent company to get privatized is the Air India, the flagship Indian airline company.
On 16 and 17 December, 2021, a nationwide bank strike was called by the United Forum of Bank Union (UFBU) against the proposed privatization of the banks by the government. United Forum of Bank Union (UFBU) is a body of nine bank unions including All India Bank Officers’ Confederation (AIBOC), All India Bank Employees Association (AIBEA) and National Organization of Bank Workers (NOBW). Many services of the banks including deposits and withdrawal at branches, cheque clearance and loan approvals got affected which also led to the ATMs getting empty in many parts of India and thousands of cheques getting piled up. Around seven lakh bank employees across the country were on strike for two days. The branches of different national banks in Sikkim also went on for the proposed strike.
In the Union Budget presentation, presented by finance minister Nirmala Sitharaman, in February had disclosed about the government’s plan to privatized two public sector banks (PSBs) as a part of its disinvestment plan. Now to facilitate the process of privatization, the government listed the Banking Laws (Amendment) Bill, 2021, for introduction and passage in the current ongoing winter session of the parliament. It is to be noted that the government had already privatized IDBI Bank by selling its majority stake in the lender to LIC in 2019 and merged 14 public sector banks in the past four years.
There was time in India where many of the current government companies used to be owned by the private players but were nationalized by the government as the public properties. The nationalization of 14 most major commercial banks in 19th July 1969 being the most historic one. Followed by the nationalization of 6 other banks in 1980. The need of such step was felt at that time as they could provide assistance to big businesses and massive industries in the country along with providing financial assistance to the agricultural sector which was and still is among the major contributor to the economy of the country. Such massive step proved to be extremely beneficial to the rural banking sectors too.
The Public Sector Banks has time and again proved to be beneficial not only just to the Indian economy but to the common people of the country. Local and small traders, entrepreneurs, businesses, farmers, etc. is able to avail loans more easily as compared to the private sectors and with lower interest rates. The saving account holders also feel that their money is safe as the chances of failing of banks owned by the government is much smaller than that of the private banks. Similarly, as the private banks are profit driven, they have lesser number of branches in rural areas. But the PSBs are developmental banks and have huge networks of bank branches in the rural areas too.
So why do the government plan to privatized the banks?
To understand this, we have to travel back a little in time to the mid-2000s. This was the time when India was witnessing a double-digit growth in its GDP and the future was looking good. The Indian businesses thought that the economic expansion would last decades and they could cash out large profits out of it so they started burrowing large sums of money from the PSBs and started to invest heavily on the Infrastructure, talents and machineries. They were burrowing large sums of money not just from the domestic lenders but from abroad too. The large portions of the sums were used for infrastructure projects such as power and steels plants.
But the 2008s global financial crisis caused the fall in global commodity prices and economic downturn hit the company revenues and increasingly made it difficult for them to repay back the loans. Due to the high inflation there was the rise in the interest rates which consequently resulted in pilling up of the loans payments. At the same time the value of rupee also got depreciated which started to burden the companies which had burrowed foreign money. These ultimately started to burden the banks as more and more loans that they had lent started to get unpaid i.e. were now started to be as ‘bad loans.’
Many PSBs now are functioning under losses and each year they are bleeding thousands of crores of public money which the government thinks cannot carry on anymore. Having the underperforming banks off the plate is the target of the government.
But the bank unions are opposed to such decisions they argue that the private banks have more NPAs than the PSBs and privatization of the banks could increase the risk of banks failing. An employee of a national bank branch in Sikkim agreed to talk on their opposition only in the condition that his identity is not revealed. He said that “we know that the banks have huge amount of unpaid debts and our systems have many flaws, but that totally doesn’t mean that the government has no control over it. The government can amend the banking laws and rules as it has the powers to do so”. He added that “Privatization of the banks will only increase the risk of banks failing even more as we have already seen in the case of Yes Bank”.
“The banks failing will have a negative effect on not just the lakhs of bank employees but also to our economy. Private owner only care for profits and nothing more” he added.
Whatever be the arguments on both the sides but the people suffering right now are the common people. The two-day banks strike meant no works in the bank branches which resulted in public works getting delayed. People could not withdraw and deposit their money which in many cases may have been urgent and crucial. A man standing outside one of the closed bank branches in Gangtok, Sikkim shared his problem saying that “I live in a close by village and was unaware of the bank strike today. I had to send money to my daughter who is studying outside the state. Since it was not that urgent so I can come any other day. But what if my daughter had needed it urgently today itself? What if today was her last day of her fee’s payment? It could have been devastating.”
The pros and cons of the current government’s plan to disinvest in the pubic sector banks has been debated by the economists, bankers, medias and the common folks since the disclosure of the government’s motive and is still among the most talked about topic. Only time will prove if the step achieves the desired outcome of the government or will prove to be the blunder as the demonetization plan of the government has proved to be.