The proposed consolidation of public sector banks will not take place purely on merit but will be influenced by extraneous factors including the political environment, Banks Board Bureau chairman Vinod Rai said on Tuesday.
Rai, who was appointed in February to oversee the overhaul of public sector banks, also revealed a key motivation behind the State Bank of India’s merger was to assess the response to the consolidation.
The government set the ball rolling for consolidation of 27 public sector banks in June this year when it cleared SBI’s merger with five of its associate banks and Bharatiya Mahila Bank.
Rai told a gathering of vigilance officers at the central vigilance commission that one reason the government went in for the merger first was that it was a low hanging fruit owing to similarities in the culture of the SBI and its associate banks.
“But more importantly,” he said, this was done “to test the waters; how will social or environment milieu take to the process of consolidation”.
Bank unions have opposed the merger and last month, went on a token one-day strike. The SBI has, however, assured them that there would be no job cuts .
For the future, the former auditor general of India said there were teams that were working to come up with the combination of banks that should be merged. That would, he said, be the “best fits”
“Unfortunately for the public sector, it is not purely on merit that consolidation will take place,” he said.
It is a point that Rai had alluded to in July when he told Hindustan Times that it would not be possible to overlook regional issues and a realistic stand would have to be taken.
“You just can’t make a – I don’t want to take a name – say XYZ bank disappear from say, Kolkata. The entire political establishment will be up in arms... The Indian Bank, if you make it disappear, the establishment in Tamil Nadu is not going to leave you alone”.
So you have to ensure that the consolidation process takes place, where you take the unions along with you but more importantly, the political environment around that area.
“So that kind of thing is work is progress. This would be worked out post 1 April,” he said in an interactive session with the officers after delivering a lecture at the CVC office.