NITI Aayog Recommends One-Year Job Guarantee For Privatised Banks: BQ Exclusive

The proposal has gone as part of a wider set of suggestions made by NITI Aayog on bank privatisation and a final decision on the matter will only be taken by the Ministry of Finance.

Finance Minister Nirmala Sitharaman in her Union Budget speech for 2021-22 said the government will privatise two state-run banks. The government has already privatised IDBI Bank Ltd. by selling its majority stake to Life Insurance Corp. of India in 2019. It has also merged 14 state-run banks in the last four years.

BloombergQuint couldn’t confirm the names of the banks recommended for privatisation.

The whole purpose of privatisation is streamlining bank operations, said the first of the two people cited earlier. The unions want guaranteed employment, but the government wants efficiencies in the economy, this person said.

Niti Aayog has suggested a temporary employment guarantee of around one year, this person said.

In offering a one-year guarantee, the government is drawing on the experience of the Air India privatisation process. There, when the government initially gave a three-year job guarantee, few investors were interested. A shorter guarantee of one year was preferable to investors. The template for bank privatisation will be on similar lines, the person said.

The NITI Aayog has submitted its recommendations but the government is very tentative on this, said a second person familiar with the matter. A decision has not been taken by the Department of Investment and Public Asset Management at all, the second person said.

The think-tank has submitted its recommendations to the Committee of Secretaries. After deliberations, DIPAM will take it to the Cabinet Committee on Economic Affairs and then CCEA will take the final call, the first person cited earlier said.

Emails sent to the Ministry of Finance and the office of the NITI Aayog vice chairman on Monday went unanswered.

According to data available as of March 2020, state-run banks employ 7.9 lakh employees. Of these, 3.96 lakh are officers, 2.8 lakh are employed as clerks and another 1.1 lakh are working as “sub-staff”.

Bank privatisation has always been opposed by employee unions. In March several bank unions belonging to state-owned banks went on a two-day nationwide strike to oppose the government’s privatisation move.

All India Bank Officers’ Confederation spokesperson Ravinder Gupta said such short-term job protection will face opposition.

“If true, this will be fatal for those working in the organisations and should not be implemented because there will be huge opposition for this single reason,” he said. “People should continue to get the same benefits and protection.”

VG Kannan, former chief executive officer of the Indian Banks’ Association, on the other hand, termed the idea of a one-year employment guarantee as to reasonable.

While selecting banks for privatisation, the NITI Aayog has recommended that state-owned banks currently under the Reserve Bank of India’s prompt corrective action framework be also considered.

The few banks under PCA are likely to come out of it soon and most of the clean-up has happened, the first person cited earlier said. By the time the disinvestment process happens most of these banks will be out of PCA, the person said.

Indian Overseas Bank, UCO Bank and Central Bank of India are currently under this framework, which is designed to help weak banks clean up and conserve capital.

The think tank has based its suggestions for privatising public-sector banks on the performance of these lenders as compared to private banks. The performance criteria being considered to include growth, the efficiency of growth, and also capital consumption, the first person quoted above said.

In March, BloombergQuint had reported that the government may choose to retain some of the largest PSU banks while looking to privatise some of the smaller ones first.

In a note on Monday, Fitch Rating said the government’s plan to privatise banks may face hurdles due to the pandemic.

“The bold move to privatise state-run banks faces risk from political opposition and structural challenges including heightened balance-sheet stress due to the Covid-19 pandemic, which is likely to keep bank performance subdued for the next two to three years,” Fitch said.

It said the political support needed for a change in the Bank Nationalisation Act, which would need to precede privatisation, could be a significant hurdle for the government.