Setback for India? Bank mergers will kill branches when the need is for expansion, says AIBEA

At a time when India is largely unbanked or underbanked with low density of banks, merger of banks will result in killing of branches and would divert attention from recovering huge outstanding loans, said a top leader of the All India Bank Employees` Association (AIBEA).

In a statement issued here, C.H. Venkatachalam, General Secretary, AIBEA said: "Mergers will surely result in closure of branches, whereas we need branch expansion to make banking accessible to all. Mergers are the very antithesis of branch expansion."

The United Forum of Bank Union (UFBU) -- a consortium of nine banks in the banking sector -- will strike work on December 26 opposing the proposed merger of the Bank of Baroda (BOB), Dena Bank and Vijaya Bank.

The AIBEA is one of the constituents of the UFBU which has decided to go on a nationwide strike. With Christmas on December 25, the banks would effectively be closed for two days affecting the banking public.

Stressing that density of banks in India is much less than many countries, Venkatachalam said that there was a need for expansion of the banking industry than a need for consolidation.

"The number of banks in the USA for a population of 323 million is far more than the number of banks in India for a population of 1.35 billion. India is not overbanked. So there is no need for consolidation," he added.

To resolve the problem of bad loans facing banks, the Government should take tough measures to recover the bad loans. Instead, the Government is trying to divert attention by resorting to merger of banks which is unwarranted, he said.

"In BOB, Dena Bank and Vijaya Bank, the total NPA (non-performing asset)/bad loan is Rs. 80,000 crore. I wonder whether these bad loans will be automatically recovered when these banks are merged?," he asked.

"After the merger of six banks with the SBI (State Bank of India), the NPA has further gone up to Rs 2,25,000 crore," he said.