Let’s Not Rush Into More Bank Merg­ers

The Economic Times - - The Edit Page -

The Union Cabi­net’s nod to the State Bank of In­dia’s (SBI) merger with its own five as­so­ciate banks is wel­come. It will place the coun­try’s largest len­der among the top 50 global lenders, bring ef­fi­ciency in its trea­sury op­er­a­tions and lower op­er­at­ing costs. Big­ger size would al­low SBI to fi­nance large in­fra­struc­ture projects and takeover deals with greater ease. Al­ready, the SBI car­ries the tag, along with ICICI, of a do­mes­tic sys­tem­i­cally im­por­tant bank and, there­fore, needs to set aside more cap­i­tal than its peers to cover risks. The com­bined en­tity should be well cap­i­talised. How­ever, the merger can­not fix the prob­lem of bad loans. They must be re­solved so that cap­i­tal in­fu­sion does not end up as pro­vi­sion­ing against bad loans. Post 2009-10, SBI had gained mar­ket share in de­posits af­ter the merger of State Bank of In­dore with it­self. So, con­sol­i­da­tion will be ben­e­fi­cial for de­posit growth. How­ever, em­ployee in­te­gra­tion could be tricky, apart from other re­ported chal­lenges such as pro­vi­sions for pen­sion li­a­bil­ity due to dif­fer­ing em­ploy­ment ben­e­fit struc­tures and syn­chro­nis­ing ac­count­ing poli­cies for recog­ni­tion of bad loans.

Ac­cord­ing to anal­y­sis by Ko­tak In­sti­tu­tional Eq­ui­ties, SBI has 18% share in branches and 22% share in de­posits and loans. It would be in the in­ter­est of the in­dus­try and the econ­omy to not add to sys­temic risk. To keep bank­ing com­pet­i­tive and to pre­vent the cre­ation of banks that are too big to fail and of bankers who are too big to go to jail, the gov­ern­ment should re­sist the temp­ta­tion to rush into more bank merg­ers. In­dia needs more pay­ment banks and small banks to achieve fi­nan­cial in­clu­sion, not gi­gan­tism. Let there be a cou­ple of big banks, yet more new banks of dif­fer­ent sizes and in­tense com­pe­ti­tion amongst them.

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