The State Sector Bank Employees Association, an umbrella organization of the employee unions of seven State Bank of India (SBI) associate banks, has called for a strike on 27 September, opposing the proposed merger of State Bank of Saurashtra with the parent.
The token strike may be successful, but the unions will find it difficult to take the battle forward as the SBI employees enjoy higher pay packets and better retirement benefits.
“State Bank of Saurashtra’s 7,000 employees will get the same benefit when the bank gets merged with the parent. Why should they oppose the merger?” asks an employee of the associate bank who does not want to be identified.
This person is predicting that the bank union leaders will eventually face the fate that the union leaders of the state-run National Textile Corp. Ltd met in the mid-1990s. They could not stop thousands of NTC employees from taking voluntary retirement as the package was “too good”.
State Bank of India chairman O.P. Bhat
Though their pay scales are the same, SBI employees are always placed in a higher grade, thereby drawing more than their counterparts in the associate banks. SBI officiers can move on to a higher scale after two years of service by clearing an internal exam, but the associate banks offer no such opportunity. SBI also has an accelerated promotion policy for its senior officers.
Some categories of SBI clerical staff get special allowances not available at the associate banks. SBI extends better medical benefits, too. It even gives its employees better retirement benefits—pension, gratuity as well as contributory provident fund (PF). The associate banks extend only gratuity and pension or PF.
“There is a cap on pension and gratuity in SBI but overall their employees earn more after retirement than the associate bank employees,” a senior executive of an associate bank says. “There are fringe benefits in some of the associate banks, such as part reimbursement of electricity bills for officers and newspaper bills for clerks following bank-specific agreements, but these benefits are not enough to make good for those which the associate bank employees do not get.”
Prafulla Patnaik, secretary of the All India State Bank Staff Federation, is, however, confident the unions can stall the merger. “It is an unnecessary exercise” by the parent bank, he says. According to him, the single largest challenge before the parent is the diverse cultural issues: “Every associate bank has a unique culture and it’s not easy to integrate that with SBI.”
Another senior associate bank officer, who does not want to be named, agrees: “We have the same technology, systems and procedures but the parent could have a mindset problem when it comes to granting promotions and maintaining the seniority of the associate bank employees. This can destroy the bank.”
Patnaik has other arguments against the proposed merger. “The associate banks are doing well and there is no need to disturb them,” he says. Another member of the All India Officers Association says that instead of encouraging a competitive environment among the associate banks, the parent bank is gunning for a monopoly by merging them with itself.
However, banking consultants hail this as the right move at this juncture. “If the integration with all the subsidiaries comes through, SBI will have a large capital base. The integration would also allow SBI to fetch a better valuation,” says Sanjay Aggarwal, national industries director, financial services, at KPMG.
Robin Roy, principal consultant at another consultancy PricewaterhouseCoopers, says the merger with Saurashtra is an “experiment” the bank is carrying out for now. He says SBI has been moving towards a virtual merger with its associate banks over the past year.
“Be it treasury operations or product development, Bank of Saurashtra is a mirror image of the parent bank,” he says. If this experiment is successful, integration with the relatively stronger State Bank of Hyderabad, State Bank of Patiala and State Bank of Travancore will be easier. “
SBI chairman Om Prakash Bhat is, however, not ready to commit anything on the future course of action at this point. “The boards of both the banks have passed resolution on the merger,” he says. “We have moved the Reserve Bank of India and the government, seeking their nod. Let us wait and watch. If this merger goes through, we may think of taking the concept forward.”
The government owns more than 59% of the bank.
Bhat had admitted at a recent bankers summit in Mumbai that SBI was grappling with large capital needs, not just to meet the growing customer credit needs but to meet the new global accounting standards of Basel II that require banks to set aside more capital for risk. “It is not easy for public sector banks to raise capital, because the government must remain the majority shareholder,” Bhat had said.
If SBI is able to integrate all its subsidiaries with itself, its capital base will rise to Rs1,026 crore, making it the largest capitalized public sector bank, and second to ICICI Bank Ltd, which has a capital base of Rs1,249 crore. The combined asset base of the seven associate banks is Rs2.39 trillion. The integrated entity will have assets worth Rs8.06 trillion. ICICI Bank, the second largest Indian bank, has an asset base of Rs3.45 trillion and Punjab National Bank, the third largest, Rs1.62 trillion.
“If Bhat wants to merge all seven associate banks, it will not be easy at one go,” says another consultant who does not wish to be quoted as his organization is advising a few Indian banks on their recast. “He should do this slowly and one at a time. Trade unions cannot stall it if the SBI management does its home work well.”