 Hello everyone, welcome to NewsClick. We are here again talking about bank mergers and I have with me Priya from the Centre for Financial Accountability. Hello Priya, welcome to NewsClick. So we have been seeing a lot of bank mergers under the current dispensation and even in the first five years we saw a merger of State Bank of India and then earlier this year we saw Vijay Bank and Dana Bank with Bank of Baroda. But the frequency with which the mergers are happening now we are going to see 10 public sector banks merged into 4. So from 27 public sector banks eventually the plan is to shrink and collapse it down to 11 public sector banks. So my first question to you is that this whole this is coming with the idea that scaling up is essentially going to make the banks more efficient, stronger banks, bigger banks are stronger banks. So what do you have to say about that? Scale at which this particular merger has come is definitely unprecedented and it's not just reducing it to 11 or 12, but I think even during JLIS time is say the ideal number for them is 4-5. So that is the aim that they want to have like 3 or 4-5 banks as limited as possible, 4-5 global big banks. So that is their the 5 trillion economy kind of a dream that they have. So this particular merger is definitely a start towards that and in the press conference of the finance minister said that in order to achieve this 5 trillion which I think now has become 7 trillion. I don't know how. So this is the only way to do it and especially in the first press meet that she gave before the merger she had painted this picture that there is a global recession somewhere they did accept that also there's a global slowdown in the economy but definitely India is doing much better with very faulty graphs but what they did was to acknowledge that there is a global meltdown. So to do this kind of a merger to kind of make this 21 public sector banks that was there into 12 at a time when you have a slowdown in your own economy when you have a global slowdown is I think not learn just says that they have not learned the right lessons because if we go back a decade back when the first recession happened the 2008 global meltdown happened it was because of too big to fail banks that they had and every effort since then globally has been to avoid a situation like that again that they have accepted that the too big to fail bank or the system is not going to work but to do so then a decade later to travel in the same trajectory in a condition that is much worse when another recession is already being predicted like probably in next year or some but we don't know for sure but there are reports saying that there might be another slowdown again globally and when internally the domestic economy has been at its worst to do something like this to make definitely the merged entities what they claim are not going to be global players not in the in the current state or even in the merged state they're not going to be because the global big banks are far ahead and even if you merged all of them into the two or three banks also that you're not going to have that that bigger bank that you want it to become a global player and they have not changed because they have not necessarily changed any other lending policies so the banks are still going to lend to the same kind of borrowers essentially big borrowers which is what the finance minister also very clearly stated that we are here for the wealth creators and what she meant was that the corporates the big businesses and the industrialists because if you recall just of last month like we had a lot of companies which came out saying that the economy is bad like whether it is apology or like the entire automobile industry so they have and there they really needed to act like I think for the last close to a five six years so many other peer like whether it's a civil society or the bank unions or good economists from the counter economists but none of them paid heat where after demonetization after GST we have all been saying that the economy is going for a toss but now when you have the industries and industrialists and your corporates coming and telling you then immediately in a week or in a month like you have this press conference and you say like yes you are important to us and we are going to do everything to make you feel comfortable we will merge the banks we will destroy the public sector banking that we have in order to cater more credit flow you know so that I think is what they think or what the finance minister or this government thinks is that the more you keep feeding into this machine or this giant that you have created and and just hope that they will give you return but that is not the case it's not only with this merger but things that had happened in the past also so you had the decimated the entire informal or unorganized sector that was in fact taking a great volume of providing employment taking in a lot of people and you have decimated that you have also decimated the smaller middle-rung even businesses like with GST so you have you know completely you know those are your sources of credits where it caters to a more volume of people and which can in turn revive your economy but you have completely done away with those things and you're not bothered to revive any of that but what you are saying is like you because you have infrastructure projects you have other the savar mala bar at Malar and all these big projects that you have that is your priority and those are the very sectors that will get affected like even if we see where the NPA problem kind of starts it's immediately even though around 2004-5 it was there but it hit home actually post recession because even though your banks were insulated because they had public they were public banks and they were deposit driven banks and so they did not have market exposure much so the banks were insulated but the businesses were not right so they were dependent on many other external factors so when that went down then your banks got this NPA kind of building up building up building up till 2014 or 15 till you actually took stock of it and because you kept lending to the same thing that was going down the drain and now again you are you want to do the same thing but because now your banks are facing a lot of problems they have a big baggage of NPA and they are at a loss so what you're trying to do is how else can I put them in permutation in combination so that they will again you know lend to this and put money in the same drain that has been draining the banks for like the last 10 years so it's going to help certain big players private players for the time being again because that sector like at least like say cool like there was a huge I mean one of the infrastructure projects whether it is mining or the thermal power plants like 36 thermal power plants have failed and where the banks have been primary lenders right and today you want banks to put in more money in those same things without changing any other conditions this is not going to help it's not going to play out so what you're going to do is you're going to you know create these four 12 banks now or maybe four or five eventually and they will again suffer this NPA crisis because you have fundamentally not altered you know your course you have not done a course correction you are doing the same thing so eventually when the next crisis is going to happen maybe with the infusion of recapitalization for the time being you might be able to say no no things are fine but they are not going to be fine because there has not been a course correction so then when these banks this four five ones again start failing then they will be too big to fail for your country and what you will do in this meantime is to privatize them because that has been the yeah the target for the last I think 25 years that you you need to privatize banks bring down the public shares the government shares down to 33% is what the Narasimha committee had recommended and I think you would do that and so you would have these private banks which will be too big to fail which will be failing and then you will put in the public money as bailout which exactly happened in 2008 and then it's like a very long long-grown process I don't see it as just a merger announcement like if you look at the announcement there are two parts of it one is the merger and which is something a lot of people have discussed and other is in terms of good the governance of the bank or the changes that are made internally which is I think much more important because it talks about empowering the board and if you take the board the board has been the primary reason for if you say the NPA crisis because they have been the ones who have sanctioned these loans these loan because of the size of the loans they are not sanctioned at a branch level or a lower level but by the boards and they have been also the ones who have evergreened these loans knowing that there is a NPA restructured them and sat through all these things and without the knowledge like and leaving the employee and very systematically because that is one way where you know there could be resistance one area whether it is the officers or the union representatives who could resist this idea but they have been kept out of it so the board along the RBI would they had a representative the finance ministry has a representative and the board members so all of them who have in what or who are actually to be held accountable for the crisis are the ones who are now empowered saying that you have more power so you can now take a call on all the I think staff officers so they can now hire and fire or you know determine the duration or the period of you know other board members so the board has become like this new entity that will control everything and where they and that is another reason why the officers have come come out very strongly against the merger so because the board will now review them on a much more stricter this thing that you cannot you have to you know perform within the idea that they are saying and you also have this chief risk officer and it is like you put a lot of restrictions on the public sector banks and like in the name of making them we are going to make them more efficient we are going to you know make them kind of give credits but towards what end like it is not there to serve the public anymore you want to make them efficient or like regulate them or you this entire risk-based assessment is that keeping in check the health of the bank is you want to basically clear the all your bad loans or clear your books and either you you you're going to do it by recap through recapitalization or you know you're going to at the end maybe you know if you want to gain more capital sell your shares so you're going to do all of these things and the primary motive here is either clear the books lend more to the corporates and both of this will ultimately lead to privatization what do you think that what are the measures that the government should be taking as opposed to the ones that they are what do you what do you think that the way forward should be even though that's probably not what the decisions they might make but still I mean which is something that will actually try with revive the economy or at least get it back on track what they should have done before like even in terms of the NPA crisis was that you need instead of restructuring like what they should have identified the sectors and then stop change the lending policies right because and specially the banks commercial banks which are mainly running on the deposits right and they are not meant to give these large-scale loans in the first place and they knew it the RBI knew it the government knew it everybody knew it and they agreed when they shifted the burden of large-scale lending from the previously existed in the developmental banks to the commercial banks they knew that there is a mismatch that they cannot this is not something that these banks were meant to do but they were forced to do it and so it is okay to take public money and do anything with it for your private gains and it's but then we will now regulate the banks so the fault is somewhere else and you are not still try attempting to even scratch the surface or even think in terms of how do we then put checks and balance in terms of when you're lending to these large-scale projects if you think like no info we have to lend to infrastructure and coal and all these things and put checks and balances have some due diligence if I'm not saying that is what one should ideally they should not there has you need to that is a you know duty of developmental banks and ideally large-scale lending should all go to the developmental banks and commercial banks should concentrate on small and medium and retail loans that is the ideal case that is what one should do but give right now that is not what is happening I'm not seeing that happening anytime soon so if you're going to lend have due diligence at least like but that also they do not want to do that we need to fundamentally change the lending policies rethink about responsible banking with social and environmental safeguards and most importantly also go back to developmental bank and which interestingly the finance minister mentioned when she talked about infrastructure lending she said we would very she just touched upon it there's an idea of going back to developmental banks but the problem with that even yes developmental banks are the ones that should support should lend for large-scale projects but initially when developmental banks existed their primary source of fund was budgetary allocation and the surplus of the RBI but at a K at but now when the finance minister is saying that we are going back to the developmental bank model but the government has already taken the RBI surplus who is going to fund the developer what kind of a model is this developmental banks so there we really don't know what they are thinking or was or was it just like it cannot be a one-off statement but you'd never know with all the half-truths and blatant lies and that they say you never know what they can claim anything okay thank you so much Priya for breaking down why the bank mergers are not necessarily going to actually strengthen some of these banks which are ridden with NPAs and we'll keep bringing to you more interviews and information about bank mergers so stay tuned to our YouTube channel on news click thank you for watching