On a consolidated path

Consolidation in the public sector banking (PSB) space is an issue that has been extensively debated for a long time but without any concrete steps initiated. The present government displaying a strong political will to consolidate the PSBs therefore needs to be hailed. None of the previous governments had exhibited such gumption. The Cabinet has now finally approved the merger of five associate banks—State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad as well as the newly-conceived Bharatiya Mahila Bank (BMB) with State Bank of India to create a R37,000-crore banking behemoth. The government has realised that in the present economic milieu, with uncertainties looming large coupled with growing risk perceptions, consolidation of PSBs has become inevitable and that there is a emergent need to prune the number of PSBs from the present level of 27 to a manageable level of something around like 7-8 bigger entities. Consolidation will help achieve economies of scale, avoid cost duplication and create a stronger and a resilient organisation. Capital is a scarce commodity and capital infusion into public sector banks by government is going to become a Herculean task in the coming years in view of tight fiscal situation, while these public sectors banks at the same time will need to be sufficiently well-capitalised both to ensure regulatory compliance. However, the merger of all five associates, along with BMB, with State Bank of India could pose few major operational issues which need to be sorted out by the management at these enterprises pre- and post-merger. The best thing, therefore, would be to first consolidate the five associates along with BMB into one single unit and the biggest of them acting as a lead in the process and also allow it to operationally stabilise for some time before eventually merging this unit with the parent State Bank of India . A similar route can then be taken for the other pubic sector banks, for instance Punjab National Bank or Indian Bank The country needs a maximum of 7-8 big banks.