Public sector banks merger could help banking system: Urjit Patel

Public sector banks merger could help banking system: Urjit Patel: The RBI Governor said a challenge that India’s central bank was grappling with was the large stressed banking sector balance sheets....

Excerpts:

"Patel said in the instance of the insolvency and bankruptcy code, the Reserve Bank of India (RBI) has been preparing actively for the next step in an orderly resolution and this will be undertaken concomitantly with the resolution of the weakest bank balance sheets under the aegis of a revised prompt corrective action framework.

“One of the things that the public sector banks need to do is to raise private capital from the market and not rely on government largesse,” he said.

Public sector banks have to be required to share the burden of recapitalising, Patel said.

This will be a good way to restore some market discipline and get the banks and their shareholders to more seriously care about management decisions, he said.

Patel also said that consolidation of banks could also entail sale of real estate where branches are redundant as well as offering voluntary retirement schemes to manage headcount and adding younger, digital—savvy personnel.

“The weaker banks are losing market share (and) that is a good thing,” Patel said.

“The stronger banks are gaining market share, which is a good thing, particularly the private sector banks. In a way it is working; those who need to shrink are shrinking.

“Lenders who are stronger are gaining more market share."

My VIEW:

Restructuring banking system*

This refers to the report “Merger of PSBs could help banking system: Urjit Patel” (The Hindu Business Line, April 26). The need for reorganization of Indian banking infrastructure to rationalize functional responsibilities, presence and outreach is as old as nationalization of banks. All along, we had a touch and run or ‘first-aid’ approach to financial sector reforms. Committees and Commissions, periodically have made recommendations on this issue, but restricted mandates or selective approach in accepting recommendations have delayed a comprehensive look at structural alterations.

Even during the last four years when RBI was visibly serious about changes in the institutional system in the financial sector, measures were sporadic and didn’t take a global view in the context of existing infrastructure and future needs. Thus we see new institutions coming up and making existing ones running for life, branches and ATMs of several banks crowding commercially developed zones while small towns, less posh urban and semi-urban areas as also rural India wait for reasonably acceptable banking services within reach.

The merger of associate banks with SBI has shown that all blames dumped on employees were misplaced. As a large geographical area remain still unbanked or under-banked, surpluses in terms of manpower released can easily be redeployed elsewhere. As public sector banks and private sector banks raise resources from the same source and by and large are expected to serve the same clientele, GOI should avoid the temptation to ‘divide and rule’ and encourage a level playing field for both categories of banks in terms of regulatory environment, functional autonomy, a self-regulated revenue-based remuneration package and professional management of human resources.

M G Warrier, Mumbai
*An edited version published in HBL on April 27, 2017.