On February 28, the All India Bank Employees Association (AIBEA) gave a strike notice to protest the outsourcing of ‘normal banking services’ to outsiders/private parties. The press statement seems to have got lost in the excitement of the Budget, or it signals that even the media no longer take bank unions and their threats very seriously.
The strident tone of the press statement establishes that AIBEA is being extremely short-sighted and is out of touch with banking trends. For starters, AIBEA seems unaware that even before the facilitation of this new rural thrust through clear guidelines, private banks have been outsourcing chunks of their ‘normal banking services’ to private agencies. Even teller services are outsourced by these banks.
RBI’s new guidelines allow banks to employ NGOs, farmers clubs, cooperatives, community organisations, corporate entities, post offices, insurance agents, panchayats, village knowledge centres, societies, trusts, Section 25 companies and non-banking finance companies for specific outsourced activities.
These are: identification of borrowers, collection, processing of loan applications and primary verification. They will also be involved in post-sanction monitoring, follow-up for recovery of principal and interest and disbursal of small value loans. They will also collect deposits, sell various bank products, receive and deliver small value payments and remittances. All these activities can be conducted outside the bank premises.
These guidelines will facilitate the rural banking thrust of private banks by extending their reach without opening new rural branches. After a two-year pilot programme, banks like ICICI and HDFC see a big business opportunity in using technology and self-help groups (SHGs) to reach out to tiny farmers and entrepreneurs in rural India, or even tiny businesses in urban centres. All these opportunities are completely outside the coverage of nationalised banks, or even smaller regional and cooperative banks. The profit opportunity exists only due to massive investment in technology, intermediation of self-help groups and efforts at de-risking farmers through insurance products and linkages to the national commodity markets.
Contrary to AIBEA claims, none of this is available to farmers or rural entrepreneurs today. They are forced to run high-risk operations that often end up binding them forever to money-lenders or driving them to suicide. Bank nationalisation, indeed, extended banking services to ‘remote rural areas’ around the country, but barring loan melas and small government-promoted schemes, there are too many restrictions to small lending by nationalised banks. That is why large parts of the country have banks raising deposits, but rarely improving local prosperity by financing business. This is especially true in India’s north-eastern states.
• Banks have been facilitating their rural thrust through outsourcing
• RBI’s new guidelines allow the use of NGOs, panchayats, etc for outsourcing
• Unions must not cripple their organisations in competing for new markets
It is in India’s national interest to give private banks a fighting chance to make a success of rural banking. Contrary to the AIBEA’s perceptions, these banks already know they are entering a difficult market that will require enormous investment in technology, dependence on informal channels of disbursement and collection, and many legal and organisational risks. The RBI guidelines are clear that “banks will be responsible for all the acts of commission and omission of the outsourced agencies” and will be accountable to the customers (not the private agencies).
Far from undermining the “mass banking role of banks,” as claimed by AIBEA, it will be outrageous and hypocritical if nationalised bank unions and their leaders protest against measures to improve rural prosperity and development. Or, to force a withdrawal of RBI guidelines on Business Facilitators, as demanded in their press release. Unionised bank employees in protected jobs are free to strike work and prevent their parent organisation from extending their rural reach, so long as they do not sabotage the efforts of private banks.
The entire tone and tenor of the AIBEA press release, with its hysterical claim that outsourcing will restrict banking only to “big, rich, corporate customers” is a throwback to the last century. It is important that trade unions and their leaders make some effort to keep track of new business opportunity created by changing technology and allow their organisations a fair chance to compete with more agile and aggressive private counterparts. Else, they have only themselves to blame if their blinkered approach weakens nationalised banks and increases the demand for privatisation.
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