Present action seems to focus on the operational synergies of these mergers, implicitly referring to the profitability and operational efficiency of the banks. Nationalized banks are interlocked with monetary policies of the government and its regulations. The principal shareholder being the government of India, monetary policy rather than profitability will be government’s main thrust.
Creating mega banks will increase performance risks, and therefore “we cannot afford to let it fail” paradigms of the government because failures could lead to macroeconomic repercussions. Given socialistic policies to boost growth in the rural areas driven by politics may mean that the cost of inefficiencies are borne by bank customers or the eventual taxpayer. The real losers in these mergers could be bank customers, as services will commensurately degrade with reduction in competition. So the question to ask is: who benefits from these mergers?
There is a big hue and cry over the mergers and main reason being loss of one’s identity on merger. It is too early to say whether these mergers are good or bad time only will tell. Intentions are good and hopefully the mergers will result in good happening to the banking and in turn economy too. Some banks like IOB and UCO are managed so badly that they are left out of merger. How long such weak banks are allowed to exist and get capital from the government instead of allowing them to die a natural death? In the interest of depositors all the bad assets should be taken out and a separate Recovery bank should be formed with such bad assets from other banks too and then they are merged to protect interests of depositors. This idea was initiated early but did not take shape. Now the time has come for a change.
The discussion was going on since many years and recently present generation also came to understand that it may come any time. Already they started with SBI, next BOB. Now we feel the pinch. VRS followed by Centralised Banking and computerisation and merger, amalgamation also allow so many things. Though manpower rationalization will help to improve operational efficiency and makes the balance sheets looks brighter isn’t it going to leave a significant number unemployed?
Howsoever we may cry, or feel nostalgic the merger of Banks was a necessity. It was pursued from 15 years back but no FM was courageous enough to implement fearing backlash particularly from employees.
(This is the first part of the article and remaining portion will continue tomorrow)
(The views expressed by the author in the article are his/her own.)