Now that employees unions have become almost toothless and the present government with big mandate is bold enough, they have done it. It will take years to make the merged entities work smoothly. The government and RBI have to take great responsibility to ensure smooth resolution of software issues and that it doesn’t result into job loss. In the current international banking scenario where huge provisions are required to be made even for standard assets and capital adequacy norms as per Basel getting stricter and stricter there is no way but to merge weaker banks with stronger ones without the government having to pump in taxpayer’s money frequently.
Talk of mergers was going on since Congress regime but they couldn’t take action as they are the main culprit to make PSBs weak. Knowing fully well bank union leaders colluded with them didn’t do anything to stop such things to save the bank. Now also they will shed crocodile tears only. Let bank union answer what they did to ensure reduction of NPA and make bank profit when they know these things will force government to merge the banks.
The concept of merging of Indian Banks to make them comparable with global standard was originally a pet project of former Finance Minister P Chidambaram. In year 2004, two day’s Banker’s conference was held at Oberoi Grand in Kolkata. CMDs & EDs of all Banks with other officials of RBI & Host Bank UCO Bank and several FIs attended the conference. Yours truly was privileged also in attendance with them. Chidambaram in his inaugural address forcefully pleaded for making big banks in India through the route of Merger/Amalgamation. None of the Indian Banks figure among too 20 Banks of the world as per Banker’s Almanac whereas several Banks from PRC, Japan, UK, Switzerland, USA and Netherlands are in the list.
The Foreign Letter of Credits/BGs issued by Indian Banks are necessarily to be confirmed by a Bank of repute in the seller’s country or by any of the big foreign banks. This apart, the Basel III (or IV?) requirements of capital adequacy can be better complied with if smaller Banks are merged to create eventually a behemoth. However, there may always be a question mark as to whether the present merger exercise is well planned and well timed? Or whether it is a hasty decision?
Also Read : Bank merger make over a must-Part I
(The views expressed by the author in the article are his/her own.)