Bank mergers: Blow hot, blow cold!
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Blow hot, blow cold?
This refers to your editorial “Mergers do not help” (Business Standard, May 23). Financial sector reforms have suffered from the impact of a “Blow hot, blow cold” approach not only from the policy makers and political leadership, but from mainstream media and analysts also. Diverse vested interests always tried to use any one of them or a combination from these agencies to dodge changes which they considered, may affect their profit motives.
Back to the subject of mergers, we do not need this many banks. The consolidation process and restructuring efforts should have started simultaneously with Bank Nationalization. Next time when you see a bank branch or ATM in a city or big town, look around for another bank branch or another ATM in close neighborhood, providing the same service. Just think, whether a slightly bigger branch providing better service and a pool of ATMs within, say a 200 metre distance will be better, or do we want status quo to satisfy vested interests.
Proposal for restructuring banks is not a novel idea, either. The Committee on the Financial System (Narasimham Committee I) which submitted its report on November 8, 1991 had this to say on the structure of the banking system:
“…The Committee is of the view that the system should evolve towards a broad pattern consisting of :
(a) 3 or 4 large banks (including the SBI) which could become international in character;
(b) 8 to 10 national banks with a network of branches throughout the country engaged in ‘universal’ banking;
(c) Local banks whose operations would be generally confined to a specific region; and
(d) Rural banks (including RRBs) whose operations would be confined to the rural areas and whose business would be predominantly engaged in financing of agriculture and allied activities.
The spirit of the recommendation above remains relevant even today. What is needed is integrating the changes in the mix of institutions and the changes in approach that are necessary to take cognizance of the advances in technology.
As regards management of banks’ stressed assets, the detailed presentation made by RBI Deputy Governor at the ICC Banking Summit on May 19, 2017 gives a broad idea as o where the shoe pinches. Looks, the chase of stressed assets has come full circle and having identified the source of malignancy, which is the borrower who is not able to generate adequate income from the investments made out of credit availed, or diversion of income generated. Once diagnosis is fair and accurate, prescribing ‘treatment’ will be easy and no harm in trusting RBI to do this.
M G Warrier, Thiruvananthapuram