AIBEA STILL RELEVANT

RELEVANCE OF BANK UNIONS TODAY

AIBEA celebrated its Platinum Jubilee, having completed 75 years of existence, on 20th April 2021, with full page advertisements in leading newspapers. Rightly so. It is the proud parent to many of the bank unions that commenced their journey after independence at different points of time and which are fighting under the banner of United Forum of Bank Unions (UFBU) now. All the unions under UFBU, namely AIBEA, AIBOC, NCBE, AIBOA, BEFI, INBEF, INBOC, NOBW and NOBO can cherish their achievements, particularly in the following areas:

 

1.     Ensuring Job Security to all employees recruited in the 1960s and 70s and recruitment based on selection through recruitment boards, employment exchanges and other proper channels.

2.     Industry-level Bipartite Settlement, ever since 1966, covering all Public Sector Banks (PSBs), majority of old generation private sector banks and a few foreign banks as well.

3.     Defined Contribution towards Provident Fund by the employer was converted into Defined Pension Benefit Scheme ensuring lifelong social security to the covered employees and their families.

4.     Well Defined Transfer and Promotion Policies, through signed settlements by the individual bank unions affiliated to one of the constituents of UFBU, without much of variance amongst the banks concerned.

5.     Making available affordable loans to employees under staff benefit schemes to purchase house, vehicle and acquire home appliances to lead a decent life with minimum external borrowings.

 

Of the above, except the bipartite wage settlement that is happening once in four years and the defined pension benefit scheme, since replaced with new pension fund scheme (NPS), the other issues appear to be well settled in all the banks. Does this mean that the role of the nine unions under UBFU is confined to industry level wage revision and bringing some improvements on NPS* only?

 

(*in the last settlement bank’s contribution towards NPS for each employee has been increased to 14% of basic and DA instead of 10% hitherto)

 

While the above argument might sound logical, it is better to remember that nothing remains constant and cannot be taken for granted. COVID wave 1, wave 2 and lock down partial or full are stark realities. Everything will change overnight, if the working conditions change. As the unions make their demands for the rights of the employees, the bank managements have their right to add performance linked duties in every settlement. Ever since commencement of the 9th bipartite settlement, IBA and PSBs have consistently raised the demand that the industry level wage revision talks be replaced with bank level settlements based on the performance of the bank, its employees and the capacity to pay. Though this has not succeeded so far, it may fructify in future, if the central government’s move to privatise some of the public sector banks succeed. The private sector banks are not obliged to give mandate to IBA for arriving at wage settlement on their behalf.  For example, CSB and CUB, old generation private sector banks and which were parties to the earlier settlements, have their own wage revision packages after or prior to the conclusion of the industry level settlements. LVB taken over by DBS Bank is not a party to the wage settlement. No new generation private banks have so far joined the industry-wise settlement entered into by IBA.

 

In addition to saving future industry level settlements, the bank unions will have their hands full, if the public sector banks were privatised, with the following dangers also.

 

A.   Preserving the defined pension benefit scheme for employees who joined prior to 1st April 2010

Pension Fund Trust was created to be managed by trustees from the bank board, management, representatives from the officers and employees union. As per the scheme, the bank shall ensure that sufficient sums are placed in the fund to enable them to make due payments to beneficiaries at all times. For this purpose, actuary valuation is carried out each year - shortfall if any is to be provided and excess if any shall be left undisturbed, with adjustments to be made in the next year’s estimated contributions (again based on actuary valuation that year). There are unconfirmed reports that the actuary valuation is not given the importance, it deserves, by a few PSBs. When some of the PSBs were merged in the last four years, no report appears to have been published on the adequacy of pension funds to meet the claims of pensioners,. After Asset Quality Review (AQR) was conducted in 2015-16, the attention has shifted more towards provision requirements on NPAs than on superannuation provisions. Incidentally, AS-15, which covers the adequacy of provisions towards superannuation benefits, was one of the important agenda items in the investor and analysts meet till FY 2015,

 

In the above circumstances, if some of the PSBs were privatised, the prospective bidders might stipulate that they will have no liability to conduct actuary valuation and provide for any shortfall to carry out the pension scheme. This might pose challenges to the viability of the scheme and the social security promised to the employees covered under the scheme.

 

B.    Preserve the employment opportunities

If the banks were privatised, the national face of employees - representing all walks of life, northeners working in south and vice versa, persons from semi urban, rural areas, densely populated states facing serious unemployment issues - is bound to change. Recruitment through boards, through common exam and interview, campus recruitments, etc. might change. 


Changes in the labour codes increasingly favour the employers under the guise ‘Ease of doing business’. Cost to the Company (CTC) and fixed period of contract might slowly replace gross salary to the employees and permanent nature of employment. NPS, a social security scheme (which is available to all bank employees), is not mandatory, if the total emoluments to an employee is in excess of Rs.15,000. The outsourcing, which is now confined to loading cash and reconciling ATMs, financial inclusion activities through business correspondents (BCs) on contract, recoveries in respect of small borrowers through agents, etc. might get expanded for the routine branch activities as well. 


When two PSBs are merged, reduction of branches/administrative office in the name of ‘rationalisation’ happens.  This is welcome as the employees rendered surplus are shifted to other needy branches/business activities.  But if a PSB is privatised, the reduction of branches will be based purely on immediate business viability. It will not be a surprise if rural branches/semi urban branches are closed down/reduced and replaced with BC Clusters/recovery agents in such places.  This will reduce the number of employment opportunities in banks concerned considerably apart from the unserved/underserved areas becoming bankless once again. .

 

Public Support: Hence the bank unions continue to be relevant to safeguard and improve upon the hard earned rights in the matters of wage revision, standard of living, preserving social security schemes and ensuring continuous employment opportunities. 


But in their present fight against privatisation of PSBs, they need to garner the support of the general public. 

(My personal view is that PSBs and PvBs should co-exist, the govt share holding should not be less than 51% but not in excess of 2/3rd of total shares and the govt should keep its hands off in the management. This will ensure efficiency and healthy competition serving national interests) 

Though everyone agrees that social objectives are and will continue to be better served only with the involvement of PSBs, the public mood is extremely negative about PSBs in the matter of efficiency and the way the certain critical  issues are handled. I take the issue of Stressed Assets which is the root cause for all other issues in the PSBs as an example.

 

a.      NPAs/Stressed Assets: Recovery of money lent should be the guiding principle in respect of loans disbursed. Identify, appraise, sanction, disburse, monitor, follow up and recover are the sequences.  Enough has been said about the need to improve the credit skills of the employees of PSBs so that instances of slippages are brought down to manageable levels. There are no two opinions. I full endorse that view.

 

But the serious issue that is plaguing the industry and PSBs in particular is resolution/recovery of stressed assets. Neither the government nor the regulator had ever shown their firm resolve in this matter. Ever since banks were nationalised and even after reforms were set in place since 1990s, the steps taken by the regulator and the government have facilitated ‘balance sheet management’ better than actual recovery. Let us take the following enablers made available since financial reforms till 2014:

 

·        BIFR enacted under SICA 1985 running upto 2015, regulatory forbearance schemes under CDR (Corporate Debt Restructuring) viz. SDR, S4A, take out finance/5/25 post global financial crisis, enabled banks to evergreen their balance sheet more than the genuine restructuring of viable units.

·        DRTs set up under RDDB Act 1993, set up to exclusively hear cases involving debts due to banks/other FIs, was a non-starter from the beginning. Even now the recoveries effected in respect of cases filed through DRT ranges around 4% only

·        ARCs (Asset Reconstruction Company) had acquired maximum assets from banks in 2011 and 2012 as the cash outlay required for completion of the transaction was only 5%. The balance was done through security receipts (SR) funded by the banks concerned.  Thus the securitisation through ARC enabled the banks to shift their NPA in advances portfolio to their investment books as SR, the value of which is the NAV as determined by rating agencies half yearly.  No actual cash recovery resulted from such transactions till the recovery is effected through legal means. The proposed ARC cum AMC is also in the same form of take over of assets at net book value from the loan books of lenders and issue SRs to be subscribed by the lenders.

·        IBC 2016 promised much only to deceive later. Insolvency and Bankruptcy code, which enabled banks to refer the defaulters, soon after their first default, to NCLT for resolution and liquidation if resolution fails enabled India to move up in international ranking in ease of doing business. However the resolutions are neither fast nor the recoveries encouraging.  There are a number of cases, where there is no resolution in sight even after completion of 2-3 years. Where the resolution is found, the loss (famously known as ‘hair cut’) ranges between 60-70 per cent in most of the cases. Large corporates appear to benefit hugely from these resolutions at the expense of the lenders, mainly PSBs. The government and RBI, which filed their arguments against waiver of interest on interest in loans during moratorium period, are mute spectators to resolutions where only a fraction of principal amount is realised. I give below a few examples of resolutions arrived in the past three years.

 

Jyoti Structures:  Claim of Financial Creditors: Rs.8,226 cr. Resolution Plan: Rs.3905 cr. to be paid over a period of 15 years. Hair Cut:53% Repayment First Year: Rs.50 cr; Second Year: Rs.75 cr. Repayment from realisation of assets. 75% of the total assets are trade receivables, which are more than six months old

 

Electrosteel Steels Ltd: Total Claim: Rs.14177 cr. Resolution Plan Rs.5320 cr. Amt to be written off: Rs.8709 cr. Haircut: 62% Capital Assets: Rs.13051 cr. Amount brought in as equity:Rs.1805 cr. As loan to be repaid in three years to investor Rs.3515 cr. 

                  

In this regard, the govt. has recently issued an ordinance to introduce a pre-packaged insolvency resolution process (PPIRP or “pre-pack”) for MSMEs, under which the insolvency process can be initiated by the MSME corporate debtor itself, by identifying/negotiating with a buyer before appointment of an insolvency professional (IP). 

I perceive three unintended fallouts due to this ordinance.

i.                   Regulatory forbearance for loans availed by MSMEs, which entitles a bank to restructure the loans to MSMEs without down grading them as NPAs, is in vogue since 2019.  Units which fail under this restructuring plan might use pre-pack to delay the legal process further.

ii.                 When the identification or negotiation with the buyer is  given to the borrower before appointment of  IP, chances of bringing family members or close friends to buy the unit with substantial haircuts to the lenders cannot be ruled out.

iii.              Lot of manufacturing units,  which act as ancillary and supply to large corporates are spread throughout the country, especially in industry belts.  Large corporates might see this as an opportunity to buy a cluster of units, which are under stress, under the pre-pack as, the stressed borrowers as a group, is an easy catch than a lender or IP.

 

 ·        SARFAESI ACT 2002, which enables the lenders to auction the residential and commercial properties without intervention of the court, is the only silver line in recovery efforts of the banks. Banks could recover early without erosion in value and in 2019-20, the recovery rate was 27% in relation to the total amount for which SARFAESI Act was invoked. 


No doubt the bank unions, especially AIBEA express their concern in public forums for not recovering monies from wilful defaulters, the write-off of large NPAs every year. But the need of the hour is to highlight the slow legal process in recovering monies through Lok Adalats, DRTs and IBCs and also the huge hair-cuts witnessed in IBC resolutions, where the losers are the bankers.

 

Long live AIBEA

 

V.Viswanathan

27th April 2021

Comments

  1. Dear Sir, some how, I feel unions lost their charm for last several years. Since, I joined the bank, I was only paying the membership fee every month, which I subscribed to at the time of joining.

    You will never approach union people, if you are doing things systematically and you don't fear for transfer. Personally, I feel their work is only symbolic now. They don't have any say in any forum, neither in front of management nor in front of Govt. In this digital era, where getting information and spreading information is just a click away, nobody can hide from transparency. They can't settle wage revision in time. Some say, they delay the revision process only to get more levy from the arrears of members. Some says, they only do and help for some close aides of them. They have to transform a lot, so that employees will start rebuilding trust on them.

    Its a nice blog sir. Shown all the facets of banking.

    ReplyDelete

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