PSB mergers should be done only after balance sheet clean-up: Rajan
Mergers of public sector banks (PSBs) should be done only after balance sheets are cleaned up and these are nursed back to health with adequate capitalisation, former Reserve Bank of India (RBI) governor Raghuram Rajan said.
“I would say restore the banks to health, get active board composed of professionals. There has been a steady attempt to professionalise banks and remove political hacks. Once we have done that, I think there will be an ideal situation for merger,” he said in an interview to PTI.
He was responding to a question on the government’s push for consolidating PSBs, with an aim to create fewer and larger banks.
Rajan also suggested that decisions need to be made by those who understand the banking system rather than necessarily by bureaucrats.
“It seems to me that cleaning up has been postponed for one reason or the other. We are in a reasonable position to do it. We need to actually achieve it and put the capital that is necessary to recapitalise banks where it is needed and after it seems that some of the (merger) decisions can be made,” he added.
The statement assumes significance, as the government recently initiated the process of second round of consolidation
in PSBs by constituting an alternative mechanism to oversee proposals of amalgamation. Pointing out that going forward, the merger would not be as easy as State Bank of India’s, which had few teething issues, Rajan said “you would be merging banks with fairly different culture, fairly different orientation, system and region”.