'Development banking will suffer'

Interview with Santi Ranjan Sengupta, general secretary, AIBOC.

The All India Bank Officers Confederation (AIBOC) is now in the limelight as a union organising resistance to the Voluntary Retirement Scheme (VRS). Its general secretary since 1995, Santi Ranjan Sengupta, is an officer in Bank of India and has be en a trade union activist for nearly 30 years. He is also the convener of the United Forum of Bank Unions (UFBU), the umbrella organisation of various bank unions that coordinates the resistance to reforms in the financial sector. During the last 22 year s, Sengupta has been the all-India general secretary of the Bank of India Officers Association. He is also on the board of Bank of India, representing its officers. Excerpts from an interview he gave Suhrid Shankar Chattopadhyay in Kolkata:

Can you give an overview of what is happening in the banking sector with respect to the VRS package?

The mindless application of the VRS is like a storm. This will cause serious problems for the nationalised banks. Skilled manpower, especially in the field of developmental and rural banking, is now likely to opt out and move towards greener pastures. Sp ecialist officers who deal with foreign exchange, commercial credit and advances are opting out. I feel that this huge response in favour of the VRS has come mainly because of the rumour that the retirement age will be rolled back to 58 from 60 years. Fo rty per cent of those opting for the VRS fall in this category. Another 30 per cent are specialist officers, who may be eyeing other avenues of employment, and the remaining 30 per cent include those retiring for health reasons.

What is the significance of the VRS package in the government's plans for the reform of the financial sector?

The VRS is an integral part of the reform process in the finance sector. The IMF (International Monetary Fund) and the World Bank have asked for the downsizing of manpower and for labour law changes to make public sector undertakings, including public se ctor banks, more easily available for mergers and takeovers by multinational companies. The reform package has been framed with that end in view.

Indian banking is totally different from banking in other countries. We have a vast population, and 45-46 per cent of that lives below the poverty line. Nationalised banking was actually adopted as a tool for social progress. Developmental and social ban king in the rural and semi-urban regions in the country will suffer a severe setback if there is an exodus of people from this sector.

What will be the impact of the VRS on the operations of public sector banks, the work pressure on those remaining in the banks, and those who have opted for the VRS?

The impact will be manifold. Customer service will be badly affected. The various schemes run by the government, which have to be implemented by these banks, will suffer. Deposit mobilisation is extremely important to us. If we do not have enough manpowe r, who will go out and do the door-to-door promotion?

The volume of work will not change. Only there will be fewer people to do that work. As a result the mental and physical pressure on the existing staff will be immense.

You have alleged that the VRS package implies that the government is playing into the hands of private and foreign banks. Could you explain how?

Well, it is obvious that the whole idea is to cripple public sector banks and to make privatisation easier. The government is hurting nationalised banks from various angles, giving private and foreign banks an unfair advantage over us. By downsizing manp ower, it is making client servicing very difficult.

What is the likely financial impact of the VRS on banks? What are the implications for capital adequacy in public sector banks? What does this mean in a situation when government holding in banks is to be reduced to 33 per cent?

The financial implications are very significant. A large amount of money will be required to pay those who opt for the scheme. On an average, assuming that Rs.10 lakhs would be the payment per head, including ex gratia and other retirement benefits, an a pproximate sum of Rs. 10,000 crores will be required if one lakh employees are to be considered dispensable. Now the question is, where will so much money come from. The government has made it clear that it will not give any money to the banks. The so-ca lled weak banks, Indian Bank, UCO (United Commercial) Bank and UBI (United Bank of India) - have not been able to pay salary arrears till date. How can they afford to spend money on the VRS? This is bound to affect the profitability of public sector bank s adversely.

It will also hit the capital adequacy of public sector banks. Many strong banks may not be able to maintain a capital adequacy of 9 per cent after the VRS unless the Reserve Bank of India exempts the unabsorbed amount of the VRS from the calculation of c apital adequacy. On an average there is likely to be a shortfall of about 2 per cent in the capital adequacy ratio of the banks. It is obvious that such a situation could not have arisen without a pre-determined design. The idea is to force the banks to go to the capital market to raise money. By doing this the government's objective of reducing its equity in the banks to 33 per cent will be achieved. This is what the Finance Minister is trying to say when he mentions that there will not be any disinves tment. It means additional capital will come from the public and government shareholding will come down, leading to the ultimate goal of privatisation.

What is the stand of the unions on the VRS package?

The unions are opposed to it as they consider it not only as a case of just downsizing, but also as a game plan for deunionisaiton. All the nine unions in the banking industry have come under the umbrella organisation called the United Forum of Bank Unio ns to fight the battle.