What halts public bank mergers?
Despite efforts to push the consolidation exercise among the public sector banks for over last one decade by successive governments no merger has fructified. Mahua Venkatesh analyses why.Updated: Mar 09, 2016, 13:26 IST
Despite efforts to push the consolidation exercise among the public sector banks for over last one decade by successive governments no merger has fructified. Reason? Until now the government—the majority stakeholder in these banks—decided to remain a mere “facilitator” in the exercise leaving the decision on mergers to be taken by bank boards.
The bank boards, especially the ones which would be “gobbled up,” did not take the exercise forward. Mergers of banks would have brought uncertainty for the chairmen-- some would have had to even step down from the post. Besides, over eight lakh employees showed resistance and unions threatened to resort to strikes after which the plan to merge banks got a quiet burial.
A report earlier released by KPMG also said that the exercise will never be successful without the intervention of the government and the Reserve Bank of India.
However, now with mounting non performing assets (NPAs)—loans that do not fetch returns—and most banks registering sharp drop in their profits, banks may be willing to finally let the merger exercise be kicked off. The government has also decided to set up a panel to look into the consolidation process. The proposed Banks Board Bureau, once operational from April 1, will also actively chalk out a roadmap.
“The government is set to play a more proactive roles based on the report of the panel and the bank board and may even ask the banks which have been identified to take the necessary steps,” a senior finance ministry official said. The gross NPAs of the state owned banks increased from 5.43% as on March 2015 to 7.30% as on December 2015.
“If you want banks to merge, the government does need to take some initiative, why should any bank say it is willing to merge,” a mid sized bank chairman told Hindustan Times on condition of anonymity.
However, issues such as mergers of weak banks, chalking out a career path for the chairmen and top management of the merged banks, cultural fitment of lenders will also have to be dealt with, insiders said.
On March 5, after the close of the Gyan Sangam—the two day retreat of public sector bank chiefs and other senior government officials, finance minister Arun Jaitley announced his vision to have “strong banks rather than numerically large numbers.”