Wednesday, July 28, 2021
HomeOpinionDiaryBetter to have 1 strong than 3 weak

Better to have 1 strong than 3 weak

A few days ago, this major decision was taken by an alternative mechanism to amalgamate Bank of Baroda, Dena Bank and Vijaya Bank. Banks were nationlised with the aim of taking banking services to the doorsteps of the common man with fast eroding and the rich and influential are benefiting from the nationalisation. Instead of merging the banks, GOI should have allowed a level playing field of competition by different banks. Lending should not be a priority. Growth and service to the customers should be their main motive.

Strong public sector banks are the need of the hour. But it is to be ensured that they are efficient and corruption-free. They must not be allowed to become carpet to wrap beneath the dirt of Non-Performing Assets (NPA). All the non-performing assets should be liquidated at the earliest to make the full use of whatever can be salvaged.

As we say that the world is becoming a global village. But the tendency of protectionism is widening mostly in the Advanced Countries. They are protecting their economies and trying to export potential. The world’s GDP is sluggish than emerging economies. An expanding and emerging economies like India and China have a huge potential for the development. The BoPs is now favouring to India against the USA. It is time to make hay while the sun shines.

This proposal by the Finance Ministry seems to be really good and effective. “It’s better to have 1 strong than 3 weak”. This will also keep an eye on the major functioning of a bank. The probability of default will get reduce and then it can also be predicted by calculating VAR at the firm level.

Dalal street experts welcomed the news saying that the merger was a positive step for the banking sector, but at the same time, some other experts say the merger will be painful in the short term but will have positive effects on the banking sector in the long term. If it is going to lead India’s economy and curb the problem of NPAs and would be helpful in the trade war, then the amalgamation must be welcomed. But it should not be the lip-service provided by the Government for the sake of their own interest.

Amalgamation or no amalgamation the core drawbacks if attended to properly could solve all the maladies. State Banks have been converted into the playing fields of politicians and their never-ending endeavour to satisfy their vote bank. It is akin to construct a concentric circle as security walls while the culprit is well ensconced in the centre of activities. If the banks are allowed to work independently as commercial entities and the financial hubs for the forward march, manned of course by competent professionals not the servile creatures of the establishment and for those near and dear to the political forces. A thorough cleaning up is the only way out not the various types of tinkering operations emanating from the very people who should realise how far they have contributed to the creation for a sick sector that has to be cured and put back on track. It is a key sector that is crying for urgent remedial action, not cosmetic changes.

While a consolidation in the Indian PSUs in the banking sector, now in a limbo is welcome; there is a need for a transparent, world class process of consolidation with a vision, mission and goal to establish a sustainable and viable banking sector. Credit culture of the nation has been eroded by reckless lending driven by vote bank considerations, loan write-offs, freebies, non-recourse lending etc. RBI with the international professional banking experts must set the vision and do a roadmap for the Indian Banking for the second economic cycle of India in the best way possible.

It is indeed a long overdue financial sector reform measure. Though there will be inevitable hiccups in the short term, it will do good to the banking sector. Ideally, there should be 6 or 7 banks that can be reckoned among the top 50 global banks. Complimenting such bold measures, steps are necessary to strengthen and enhance the quality of supervision of banks by the RBI. We have to wait and watch to see how the merger works wonders.

 

(The views expressed by the author in the article are his/her own.)

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