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How will psychological contract be manged?


Merger of Indian Banks

The five Associate Banks of SBI had a Market share of 5.30% in deposits and 5.33% in advances approximately as on 31st March 2016. Their net profit stood at 1,640  crore. Bank`s central Board has recently passed a resolution to seek the Government`s nod to start negotiating the merger of our five subsidiary banks and Bharatiya Mahila Bank with your bank. Such a merger will make your bank more efficient, derive the benefit of all synergies and improve its dominance in the banking space.  (State Bank of India. Annual Report 2015-16)

In an interview with Reuters  in power packed Davos, the Chairman of largest bank in India has declared that State Bank of India could tap capital markets upto $1.5 billion, though it needs to complete planned merger with its subsidiary banks (20 January 2017). Mark her words- “…there is a merger that we are planning to do..”. However, it seems Arundhati Bhattacharya was not quizzed by Angeline Ong and Sujata Rao regarding this merger & the planning! Why question, merger will be success anyway, one may ask.

It is pertinent to note here the conclusion of aviation secretary regarding merger of government owned airlines- Indian Airlines (IA) and Air India (AI)-“The kind of advantage we thought we could derive (from the merger) were bogged down due to HR issues”. This merger took place on 1 April 2007 and it has taken nearly one decade to realize the importance of managing change with respect to employees in the workplace.

The merger would involve integrating the role and services of around 70,000 staff and 7,000 branches. How will this be managed? Information  was sought under Right to Information (RTI) Act 2005 from these 5 Banks on 23/8/2016.

One of the query asked- “Has your bank undertaken any pre-merger study regarding employees/Human Resources? If yes, what are the key findings?”

Of the 5 banks, only State Bank of India responded to the query that too in negative.
The response from Central Public Information officer (CPIO) of these banks is as follows:
(1) State Bank of Mysore has not responded.
(2) State Bank of Travancore responded- “The question is in nature of seeking opinion of CPIO. Questions seeking opinion /advice of CPIO does not qualify to be treated as a request for ‘information’ as defined under section 2(f) of the Act”.
(3) State Bank of Bikaner & Jaipur responded- “information asked is not specific & due to clarification and questioning nature, does not fall under section 2(f) of the RTI Act”.
(4) Bhartiya Mahila Bank responded-“The query does not fall under the RTI Act 2005. Further, information sought under section 8(1) (d) of the RTI ACT 2005. Hence not provided”.
(5) State Bank of India responded-”No such information is held by us”.

Without any pre-merger study, this merger has been approved, going the Air India- Indian Airlines way. The query about merger should have been responded by to-be merged banks as it falls under section 4 of the RTI Act. The fact CPIOs (who are also employees) of to-be-merged banks did not reveal that no pre-merger study has been conducted regarding employees/Human Resources raises serious concern about the success of forthcoming merger. Does this reflect job insecurity? Job insecurity is a subjective phenomenon: cues that are objectively available are perceived as threats to the continuity of one’s job. Critical to feeling of job insecurity is the individual’s felt vulnerability originating with his or her perception of threatening signals in the work environment as Van Vuuren would state. The large State Bank of India taking over their small banks & dominating all the way will make them insure. The fact employees of associate banks will get only 15 days to decide whether to accept a new job with the State Bank of India or opt for voluntary retirement via an ‘option letter’ that will given to them as part of the merger of India’s largest bank with its four associates, disburses job insecurity among employees ( 18/8/2016) This letter is clear threat- take it or get out, speaks of a total power-coercive merger.

Psychologists have been long interested in explaining individual’s reaction to their encounters with other people, groups and organisations. The first school of justice deals with distributional, that is the effect on individuals of the outcomes associated with their relationships or encounters. The second school of justice deals with procedural issues. It revealed that individual’s reaction also depends on the fairness of procedures used by the other party to plan and implement resource allocation decisions.

(1) The merger has not been discussed with the employees and they have no say in terms and conditions of merger.
(2) The employees have been given option to either accept the merger or quit.
(3) The merger has not been discussed with all shareholders.
(4) Regarding outcomes, there is no study in public domain to show post merger, to-be-merged banks will benefit.
(5) There is no consistency in merger as Bhartiya Mahila Bank (Indian women Bank)’s aim is entirely different from associated Bank. Moreover 3 associated to be merged banks are regional centric- Travancore (in state of Karnataka), Jaipur & Bikaner (in state of Rajasthan), Mysore (In the state of Kerala). Their mission, vision is different from that of the State Bank of India.

The concept of psychological contract has seen interest of Management Gurus mainly  in light of employment relationship in organizations However, customers of banks also have a psychological contract with the bank. A main street account holder has series of expectations from a Bank and he/she continues to hold his/her account in a particular bank as the Bank fulfills them. On the issue of reciprocity, the Bank too has expectations from account holder. But here is a difference from theory of Social Exchange, here is Business Exchange. The bank behaves  differently with different category of account holder, doling out better treatment for the rich account holders. But post merger, the bigger Bank (bureacuracy) will dominate and mission & aim of smaller banks will perish. End to personalise banking.  But there is no visible plan in the public domain to manage the psychological contract breach. Is it because main street account holders are 'small'  & assumed to be captive with no choice?

All one hears is formulation of a Big Bank- post merger. What is the evidence that post merger, the largest public sector bank- State Bank of India will perform better? Does “Big is good”- not a phrase sung post financial crisis of 2008, reflect on recklessness of the giants and government cushioning them bailout packages? Who can forget that the U.S. government had spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy? Greg had pointed  Democratic presidential candidate Bernie Sanders had built his campaign on the claim that big banks are a menace to society and should be broken up. At the root of these concerns is that if any financial institution is so big or important that the government can’t let it collapse, investors will lend to it too cheaply. That de facto subsidy provides an advantage over smaller competitors and encourages management to borrow too much, making it more likely to collapse. And that "too big to fail" subsidy emerged afterward, as government bailouts, in particular after the failure of Lehman Brothers in 2008, made it clear that no big firm would be allowed to collapse. (WSJ. 2 March 2016). Lisa Lambert reported that none of the eight systemically important banks, which the U.S. government considers "too big to fail," fared well in the evaluations by federal regulators.   Five out of eight of the biggest U.S. banks did not have credible plans for winding down operations during a crisis without the help of public money. So why go for merger to build a big bank? Ben Bernanke also had to concede- “…It’s true that economists disagree on the returns to size in banking. There are no doubt diseconomies of scale as well (e.g., ‘Too Big to Manage.’)”.

Mergers involve organization change that can involve change in social-technical system, attitude, skill, values, culture etc. The change is not as easy as Lewin’s phases-”unfreezing-changing-refreezing”. Of the change strategies presented by Chin & Benne, namely empirical-rational, normative-reductive and power-coercion.

Can forced compliance change core assumptions prevailing in an employee’s mind, even after fulfilling distributional & procedural justice theories? It is assumed that forced compliance change will arouse dissonance in the minds of the employees, which they might resolve by changing their beliefs. However, the precondition of this to happen is the availability of choice as mentioned by Eiser, which is absent in case of this merger of these banks. The negative affect due to breach of psychological contract will have a long term affect. The most difficult is to change organizational culture as any attempt to change implies change in prevailing core beliefs and assumptions. To change culture, it is crucial to find out the underlying assumptions- which are typically unconscious but actually determine how employees perceived, think and feel.

Look at the response of CPIOs of Banks regarding organizational culture prevailing in their banks:
(1) State Bank of Mysore has not responded.
(2) State Bank of Bikaner & Jaipur stated- “information asked is not specific & due to clarification and questioning nature, does not fall under section 2(f) of the RTI Act”.
(3) Bhartiya Mahila Bank responded- “The query does not fall under the RTI Act 2005. Further, information sought under section 8(1) (d) of the RTI Act 2005. Hence not provided”.
(4) State Bank of Travancore stated-“We have not formulated any organizational culture for our Bank”.
(5) State Bank of India responded- “Query is not clear”.

This is in contrast from Banks like Deutsche Bank which declares-”Creating a stronger bank rooted in a strong culture” on its website. Surely, organizational culture is not a secret that cannot be revealed under RTI Act! And is not a mystery that makes a query – “not clear”! It seems CPIOs of these Indian Banks have forgotten the contents of RTI Act 2005, which starts off-“An Act to provide for setting out the practical regime of right to information for citizens to secure access to information under the control of public authorities to promote transparency and accountability in the working of public authority..” & section 4 of this Act. Indeed, getting organizational culture right is crucial for efficient performancer, but will the top management of these banks recognize this first? This is most disturbing for largest public sector bank- State Bank of India- "Query not clear"! What kind of merger this will be when State Bank of India is not willing even to reveal present organizational culture!


The study of annual reports of State Bank of India reveals no negative impact of rising non performance assets, declining return on average assets, declining return on equity, declining profit per employee- on remuneration of Chairman and Managing Directors of State Bank of India. Infact, during 2015-16, the Chairman of State Bank of India was provided Rs 700K as incentive, though her basic pay was Rs.960K. This generous dose of incentives is also seen for 5 Managing Directors! When top management of State Bank of India continue to get awarded, irrespective of health of bank, what “value/mission/vision” gets tickled down to rest of the employees is not difficult to guess.


To the query-“Is the salary provided to employees of your bank based on ‘pay for performance’? If yes, how is performance of an employee judged? Please provide details regarding criteria on which performance of employees are judged? “

The CPIO of State Bank of India, who is also the Deputy General Manager (RTI) responded - “In State Bank of India salary is fixed on the basis of industry level bipartite settlements and not on the basis of pay for performance”. Naturally, top management of State Bank of India has shown the way.

To query- “What is the criteria for judging performance of any branch of your bank?”.
The CPIO of State Bank of India, who is also the Deputy General Manager (RTI) responded - “No such information is held”.  
To query- Is concept of “multi-skilling” practiced in your bank among employees at all levels? The CPIO of State Bank of India, who is also the Deputy General Manager (Industrial Relations) responded - “Query is not clear. However, Bank regularly provides training to all its employees to impart knowledge, improve skills”.

Deputy General Manager (Industrial Relations), SBI, who is also CPIO responded to query- “What is the ‘organizational culture’ of your bank? Has it changed since 1991? If yes, please provide details” with four words-“Query is not clear”.

It is high time that transformational restructuring takes place in State Bank of India before any talk of  any merger. To start with, a retrospective & present cut in remuneration of present Chairman of State Bank of India & all Senior flap: not much to ask, follow the Apple way!


                                                                                                                   SARCAJC (23/01/2017)

In case of merger of SBI with associated banks, procedure justice has not been followed:

State Bank of India has no information on any pre-merger study regarding employees/Human Resources

Banks are not revealing what is their Organizational culture.  Lack of transparency enforcing culture of secrecy in banks

Ben Bernake- "...Its true economists disagree on returns to size in Banking. There are no  doubts diseconomies of scale as well..."

Managing Organizational Culture is important for successful merger.  But why are banks not revealing present organizational culture?

State Bank of Travancore has not formulated any organizational culture. Tells a lot about prevailing Human Resource Management policies and lack of commitment of top management.

POST SCRIPT- An Investigation : Merger of Indian Banks
The merger of largest government controlled bank in India- SBI with other 5 banks has taken place and the data reveals it has NOT been successful. Unlike enthusiastic economists, media, SARCAJC was the lone voice that had raised serious apprehension based on organisational behaviour, HRM.


Most leading newspapers carry from time to time photographs of smiling “women achievers” – majority having privileged backgrounds. As an exception today, the front page of Dainik Jagran, daily newspaper in Hindi, has highlighted a news report, carried on page 15- “ Shepherd’s daughter changed luck of family of millions”.  (7 August 2018) The importance of this achievement was visible by the highlight headline given by Dainik Jagran on its front page- “Charioteer of Independence”. Poor and underprivileged Phoolbasan from Indian State of Chhattisgarh started saving by raising goats and subsequently started a self help group of women during year 2001 with contribution of handful of rich & only Rs 2. The name- Phoolbasan means- “perfume of flowers” and the lady has very rightly proved it right. There is no doubt that Phoolbasan has upright integrity, honesty and determination due to which 200000 women have benefited (are members) and have saved Rs 250 million. This saving is indeed a mark of women empowerment.

A week before Independence Day of India, should we not ponder why the only government owned women Bank- Bhartiya Mahila Bank (BMB) was merged with the largest public sector bank in India- State bank of India (SBI)? Why did BMB lose it identity? Official sources anonymously revealed that the logic behind the SBI merger was to merge weak banks with the strong one (SBI). However, this logic does not hold ground for BMB-SBI merger. BMB was making profits & was not ridden with the problem of non-performing assets (NPAs), while SBI was ridden by high volume of NPAs. So no prizes for guessing- who gained from BMB-SBI merger! Incidentally, the Chairman of SBI during time of merger was also a woman, who had spent all banking life in SBI. But can the same be said about her like Phoolbasan? 

Pioneering Sociologist Max Weber had long ago observed- “Every bureaucracy seeks to increase the supremacy of the professionally informed by keeping their knowledge & intentions secret. Bureaucratic administration always tends to be an administration of ‘secret sessions’: so far as it can it hides its knowledge & action from criticism”

Will the merger of these Banks follow the IA-AI merger path?

Bad health of State Bank of India did not damper incentives to top Management of State Bank of India

Post merger 'Big Bank' is 'Big bureaucracy', but will it be efficient for Main Street?

It seems the power coercion strategy  is operational for this merger.