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What are bank strikes and why do they happen?

28 March 2022

Bank strikes are not an uncommon occurrence in our country. The enlightened worker unions play an important role as the gatekeepers of human rights and labour welfare, participating in the democratic process of the country. For instance, there was a two-day strike against the bill on the privatisation of banks. Recently, there is yet another nationwide two-day strike on March 28 and 29, 2022. This is to protest against government policies affecting workers, farmers, and people and against the privatisation of banks.

Let us dig deeper into the topic to assess what it is, why they happen and the impact they have on the market and economy at large.

What is a bank strike?

Bank strikes happen when the employees of banks collectively decide to stop everyday operations. This is in an attempt to get the management or government authorities to hear their voice against any oncoming structural change or difficulty they face in their line of work. One of the most common reasons for bank strikes has been a demand for an increase in their salaries or better safety and work-life balance for bank employees. The latest incident of bank unions and public sector bank employees going on a strike is due to the Government’s proposal to divest its stake in PSU banks.

Banks have Unions that operate for the welfare of the banking sector employees. The United Forum of Bank Unions (UBFU) is an umbrella organisation. It comprises nine bank unions at the moment. It keeps the needs and interests of the bank employees as the top-most priority.

Impact on the banking sector 

In most cases, strikes disrupt the banking system since employees disengage from routine activities. Most branches are shut down as a sign of protest. This causes a delay and even a temporary halt in daily operations, which results in uncleared cheques and haywire bank instruments. There is also a chance of ATMs running out of cash, depending on how long the strike continues.

Strikes may differ depending on which segment of the sector is being impacted by the change in policy or regulation. There may be cases where the public sector employees strike, while the private banks continue their operations. This reduces the blow that the banking sector faces. However, the banks lose out on business hours which impact their coffers significantly. When private bank employees too join hands with the public sector bank employees, the situation becomes more grave. 

Over time, banks have become more complex than just a place to deposit money. They provide an array of investment options and transactional solutions like fixed deposits, loans, insurance, mortgage facilities, locker facilities, foreign exchange and many other schemes. The delay in services can make quite a dent not only for the banks themselves but also impact business operations across the globe.

Impact on customers 

For customers, a bank strike can be a cause of worry. With banking operations coming to a standstill, problems with deposits and withdrawals arise. As a result, someone in dire need of funds may have to wait as sometimes even ATMs run out of cash. This may lead to several negative repercussions for the customer as they may fail to meet their financial obligation. Since fund transfers also may be hampered, customers may be asked to wait for banking services to resume.

Further, strikes may also cause a delay in loan approvals. This can be detrimental if a protest continues for a longer time. For example, students applying for education loans may be running close to deadlines and a delay in loan sanctioning or disbursal may hamper their aspirations. 

Most banks have a functioning net banking facility. As technology advances, it is bearable as banking services are operable despite bank strikes.

Impact on the market

Given most transactions happen on a digitized platform, unless there is a technical fault during the period of the strike, payments are generally unhampered. That said, stock market investors are generally wary of any potential risks they may face. Fear of cash settlements not taking place at the right time may see the market having a possibly lower volumes-trade happening during days of bank strike.  

Also, of course, the banking sector stocks see significant price cuts that could impact the overall market, banks being a heavyweight in benchmark indices. Investors may foresee some consequences if a strike goes on for a long period. It may create an environment of doubt which could slow down the transactions in the market. This could translate into a fall in the indices when the markets close for the day.

As for the money market, strikes briefly hamper the liquidity. It causes a delay in the trading of short-term financial instruments.   

Impact on the economy

Banks are a pillar of the economy and are in charge of the liquidity in the system. Because banks accept deposits, they perform the function of a money multiplier. The cash accepted is lent out, keeping some amount as reserves. Bank strikes put this everyday activity on hold. This may lead to a near-term credit crunch in the economy apart from affecting the stability of the banking system in the long run. 

Strikes may lead to less productivity, which implies lesser profits in the short run. Further, the clearance of import and export bills is pushed. This affects the country’s efficiency on the global platform. 

To conclude

Bank strikes are undertaken with a motive to present the ideas of the welfare of the banking sector employees. It is a strong move that has been successfully used by bank unions many times in the past. However, it comes with the disruption of some crucial activities. 

The foremost and significant impact is felt by the customers who could face disruptions in normal transactions, withdrawals, deposits, loan disbursals, and many similar activities. This adverse impact is directly transferred to the economy which may be exposed to a brief shock due to disrupted financial operations. The duration of these strikes define the momentum of this shock; the longer the strike, the deeper the impact.

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