×

UPSC Courses

DNA banner

DAILY NEWS ANALYSIS

  • 24 September, 2019

  • 3 Min Read

Making the grand India PSB mergers work

GS-III: Making the grand India PSB mergers work.

News

The initial enthusiasm of market analysts to the bank merger announcement is giving way to wariness and scepticism.

Procedure of Bank Merger

  • An application for merger is submitted by the concerned banks to the Central Registrar of Cooperative Societies (CRCS).
  • A copy of the application is also sent to Reserve Bank of India (RBI) along with valuation report and information relevant for consideration of the scheme of merger.
  • The RBI then examines the scheme in respect to the interests of depositors and conveys its decision to the CRCS.

What is the rationale behind the mergers?

  • It was the Narasimham Committee in the late 1990s that recommended consolidation through a process of merging strong banks.
  • There are too many banks in India with sizes that are minuscule by global standards with their growth constricted by their inability to expand.
  • Given this, the biggest plus of the mergers is that they will create banks of scale.
  • According to the government, banks have been merged on the basis of likely operating efficiencies, better usage of equity and their technological platform.
  • But the move marks a departure from the plan to privatise some of the banks or bringing in strategic investors to usher in reform in the sector.
  • The government has decided amalgamation as the “best route” to achieve banking sector scale.
  • This is also expected to support the target of achieving a $5 trillion economic size for India in 5 years.
  • However, mergers may not lead to any immediate improvement in their credit metrics.

How effective could the merger be?

  • Bank consolidation is a good move towards improving efficiency of the PSBs.
  • This would enable the consolidated entities to meaningfully improve scale of operations and help their competitive position.
  • Given that the merged banks are on similar technology platform, the integration should be smoother.
  • However, there may not be any immediate improvement in their credit metrics as all of them have relatively weak solvency profiles.

What are the challenges and priorities now?

  • Mergers are driven by synergies in products, business, geographies or technology and the most important, cost synergies.
  • There may be some geographical synergies between the banks being merged now.
  • But unless banks realise cost synergies through branch and staff rationalisation, the mergers may not mean much to them or to the economy.
  • This is where the government’s strategy becomes significant.
  • Evidently, public sector banks are overstaffed.
  • But the key reforms to be made are at the board level, including in appointments, especially of government nominees.
  • These are often political appointees, with little exposure to banking.

Way forward:

While such consolidation can result in handsome productivity gains, what matters is the quality of execution by at stable and committed leadership aided by a shrewd and benign ownership.

Source: THE HINDU


Great Barrier Reef’s Recovery and Vulnerability

Great Barrier Reef’s Recovery and Vulnerability An annual long-term monitoring report on the Great Barrier Reef's recovery and susceptibility to climate threats was just made public by the Australian Institute of Marine Science (AIMS). In-water and airborne methods are used to survey the reefs. Key finding   &n

Council of Scientific and Industrial Research

Council of Scientific and Industrial Research Nallathamby Kalaiselvi, a senior electrochemical scientist, has been named the Council of Scientific and Industrial Research's first female Director General. Her appointment is for a period of two years with effect from the date of assumption of charge of the post or until further orders, w

Significance OF Tribes

Significance OF Tribes Every year on August 9th, there is a celebration known as World Tribal Day or International Day of the World's Indigenous Peoples. Its objectives are to advance and defend the rights of all indigenous peoples worldwide and to recognize their contributions to global issues like environmental preservation. Back

Pharmacopoeia Commission for Indian Medicine

Pharmacopoeia Commission for Indian Medicine The Pharmacopoeia Commission for Indian Medicine & Homoeopathy (PCIM&H) has been formed by the Indian government as a subsidiary office under the Ministry of Ayush.  The Pharmacopoeia Commission of Indian Medicine & Homoeopathy (PCIM&H) and the two central laboratories, Homoeo

Governing Telecommunication in India

Governing Telecommunication in India The Ministry of Communication, Department of Telecommunications (DoT) recently issued an invitation for comments regarding the requirement to update the legal framework governing the telecom sector. It also published a consultation document in which it advocated for the creation of a new legal framework th

Toppers

Search By Date

Newsletter Subscription
SMS Alerts