The idea of merging weak banks with ’strong’ Public Sector Banks have been on the cards for about a year now. Also on are the discussions about mergers of one PSB with another.
The various studies carried out on this issue had earlier resulted in the announcement by the Union Finance Minister P. Chidambaram that PSBs would be encouraged to merge, in September last.
Even at that time, the Hindu – Frontline went on to write on this issue.
T.T. Ram Mohan, Associate Professor at the Indian Institute of Management, Ahmedabad was quoted thus:
T.T. Ram Mohan, Associate Professor at the Indian Institute of Management, Ahmedabad, wonders why the Finance Ministry “should be hard-selling this idea at this point”. He termed as unfortunate any attempt to merge strong banks with weak ones. “Mergers,” he argues, “must be dictated by the market and decided by bank boards.” To do this, he suggests that the unlisted banks must be brought to the market first. “Once they are listed, we have the benefit of the market monitoring the value of the merger from the word go,” said Ram Mohan.
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If the regional bank, for instance State Bank of Travancore, is merged into a single giant entity, it will not only affect the regional subsidiary but also the parent bank. “The potential for losing out on local flavour is something that cannot be ignored in discussions on mergers,” says Ram Mohan.
But now, after a year, the PSB Unions have again come on the issue very strongly.
Mr C.H. Venkatachalam, Convenor, United Forum of Bank Unions, said, “We do not agree with the view of the Finance Minister that our banks need to be merged. Banks cannot become strong only by just mergers. Even if all the 27 public sector banks get merged into one, we will not be equal to any of the world’s big banks in terms of capital or resources. The total business of the merged banks will remain the same.”
The loss of local flavour, as quoted by the IIM faculty is really a serious issue that the banks have to bear in mind. Most localites are loyal to the business that have roots close to their homes.
Also the Union leader’s point that merger alone does not make any bank stronger is very valid under the present economic situations.
We have to wait and watch the Government’s plans to see if the whole idea is with a background of selling local banks to foreign giants.
Posted by Revathi 