BELATED MERGER BUT WELCOME

For over four years, the Government did virtually nothing to push the economic reforms, focusing, instead, on the nuts and bolts of the economic system, fixing leakages, removing bottlenecks and trying to work the inherited economic engine as well as it could. The disinvestment process was halted, the public sector was sought to be freed from government controls in the hope that it would turn the corner. It did not. Air India did not stop bleeding with the advent of an honest and purposeful government because it was weighed down with the accumulated sins of the previous governments. It was not amenable to any band-aid solutions. Why, even the consolidation of small and medium banks in the public sector with a bigger one was undertaken only last year with the State Bank of India finally absorbing all its subsidiaries. A government that enjoyed a comfortable majority in the Lok Sabha, a prime minister who was not afraid to take bold decisions, the pity is, proved so hesitant to push ahead the economic reforms agenda with the result that we are yet to be rid of the huge drags on the economy. Busying himself in launching various welfare schemes for the poor, such as the distribution of LPG cylinders, electrification of village homes, Jana Dhan and Mudra platforms for disbursal of financial aid to the under-privileged, the urgent task of consolidation of the public sector banks was put on the back burner. Despite the recommendations of various expert committees, no effort was made to reduce the number of public sector bank. A committee headed by a former RBI Governor M Narasimhan had called for a restructuring of public sector banks to create three or four large banks instead of having some two dozen in the public sector. The UPA Government paid no heed to the report, though it was Manmohan Singh as Finance Minister in the Narasimha Rao Government who had set up the committee. That even after the merger of its subsidiaries, the SBI, the country’s largest bank, would rank tenth or even lower when compared to the Chinese banks ought to provide an idea of the relative scale and smallness of our banking operations. Now, Monday’s decision to amalgamate Bank of Baroda, Vijaya Bank and Dena Bank is sought to be sold as a reform. Yes, the merged entity will emerge as the third largest in terms of business and advances. Earlier, in a controversial decision the Government had virtually coerced the Life Insurance Corporation to take over the failing IDBI Bank when the former had no prior experience of the banking sector operations. The merger of the three banks might make for consolidation of assets and liabilities and the resulting synergies might result in considerable savings in real estate and additional business, since the three would no longer compete against one another almost for the same business, but there will be problems of over-staffing and union trouble.

Had the merger come early in the life of the Modi Government, the resistance by the labour unions could have been easier to handle. Of the three banks, Bank of Baroda is the biggest, Dena Bank the smallest, though the two more or less concentrate in the western region. Vijaya Bank is big in the South, especially Karnataka, and has been relatively better-managed. Dena Bank is saddled with the highest percentage of NPAs at 22 percent of its advances, the figure for Vijaya is 6.9 while BOB has 12.4 percent NPAs. Merger will hardly alter the NPA situation for the new entity. Without a drastic change in the administrative style and functioning of the public sector banks, without freeing them from the tyranny of the babus in the Finance Ministry, without injecting competent professionals at the higher echelons of the bank managements, mergers of banks would fail to achieve anything worthwhile. Granting autonomy to boards, staffing them with independent and knowledgeable directors, and not hangers-on of politicians, too is important for the professionalization of the public sector banks. If relatively new banks in the private sector are doing much better, it is mainly because they are run on professional lines, and not like the fiefdom of bureaucrats and ruling politicians. Modi should free the public sector bank from government controls.