Central Government has been building pressure on banks to make best efforts for merger and acquisition. But I am unable to understand the motive behind it in Indian perspective.Finance Minister has said that through the consolidation, financial powers of banks will improve and they will not only be able to augment efficiency and help in GDP growth but also get success in competing with International big banks.
Here the million dollar question arises whether Late Indira Gandhi had nationalized banks to compete with International banks?
And whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only?
Have government forgotten the social objective of banks completely?
Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India?
Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?
It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general even now is not due to financing made to small traders and farmers but only due to bulk financing made by banks to big corporate houses, to real estate developers and to infra structure developers.
Does the government or RBI mean to say that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?
Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living.
Have government forgotten the social objective of banks completely?
Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India?
Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?
It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general even now is not due to financing made to small traders and farmers but only due to bulk financing made by banks to big corporate houses, to real estate developers and to infra structure developers.
Does the government or RBI mean to say that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?
Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living.
Considerable large proportion of Indian population is suffering from mal-nutrition; they die of curable diseases in want of proper medical assistance and they remain unemployed in want of adequate opportunities. This is India where even federal structure of the country is at stake due to largely growing unemployment and where person like Raj Thakre has been trying hard to disallow Non-marathi to seek employment in Maharashtra and Shiv Raj Chouhan CM says he would not employment to Biharis and North Indian in the state of MP.
Besides in majority of villages, small towns and cities there is no proper sanitation facilities, acute scarcity of water and electricity, crisis for medical treatment and what not.
This is why I reiterate that Indian environment is different from other developed nations and hence need unique treatment.
It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA.
It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA.
Even in India, as on Today , health of big banks like SBI and PNB is the worst due to mismanagement, God knows what will happen when SBI associate banks merge with SBI.
If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers.They cannot extend any better help to poor person after merger of banks.Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men.
Even if government feels the necessity of having large banks with huge capital to compete with foreign banks, they can choose to have one or two like SBI or PNB (after merger of SBI with associate banks I think capital size of SBI will be comparable with their foreign counterparts and similarly after merger of PNB with some suitable bank),At least other banks should be left untouched to serve common men and forget big projects, bulk financing, corporate borrowers completely and concentrate only on small and mid size borrowers i.e. credit upto ten lacs.
Even if we leave aside the social objective,it is not commercially proposition to build pressure (frequent request by FM or RBI is enough to build pressure) on banks to go for merger and acquisition especially when government have granted economic freedom to individual banks in the era of economic reformation , liberalization and globalization When need will arise banks will themselves strive hard to grow bigger to survive. As of now banks in India are said to be safer than foreign banks. Even government has admitted it repeatedly.
Inspite of all ,if government still consider it better to go for merger , I would like to suggest our Finance Minister to merge all PSBs including SBI and make them one entity like Income Tax department and other departments of Government of India so that there be no unwarranted interest rate war, no case of multiple financing, no case of take over at the cost of bank’s interest and no unhealthy competition as prevalent in banking industry. There will be unified effort to recover the money from recalcitrant borrowers. Banks will be able to check money laundering in a better way .People will not get opportunity to park their black money in different branches of different banks.
Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in bank’s balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every bank’s branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset.
If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers.They cannot extend any better help to poor person after merger of banks.Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men.
Even if government feels the necessity of having large banks with huge capital to compete with foreign banks, they can choose to have one or two like SBI or PNB (after merger of SBI with associate banks I think capital size of SBI will be comparable with their foreign counterparts and similarly after merger of PNB with some suitable bank),At least other banks should be left untouched to serve common men and forget big projects, bulk financing, corporate borrowers completely and concentrate only on small and mid size borrowers i.e. credit upto ten lacs.
Even if we leave aside the social objective,it is not commercially proposition to build pressure (frequent request by FM or RBI is enough to build pressure) on banks to go for merger and acquisition especially when government have granted economic freedom to individual banks in the era of economic reformation , liberalization and globalization When need will arise banks will themselves strive hard to grow bigger to survive. As of now banks in India are said to be safer than foreign banks. Even government has admitted it repeatedly.
Inspite of all ,if government still consider it better to go for merger , I would like to suggest our Finance Minister to merge all PSBs including SBI and make them one entity like Income Tax department and other departments of Government of India so that there be no unwarranted interest rate war, no case of multiple financing, no case of take over at the cost of bank’s interest and no unhealthy competition as prevalent in banking industry. There will be unified effort to recover the money from recalcitrant borrowers. Banks will be able to check money laundering in a better way .People will not get opportunity to park their black money in different branches of different banks.
Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in bank’s balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every bank’s branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset.
Need of the hour is to avoid political intervention in banking affairs and to resort to healthy norms for financing without any fear of target achievement. To add fuel to fire every banks are suffering from staff shortage and as a consequence there is no monitoring on existing borrowal accounts and gradually service quality in banks at many branches is deteriorating in want of adequate staff. Banks are even unable to redeploy the existing surplus staff at Metro branches due to protest from powerful employees union.
Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused by these profit makers only.
Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused by these profit makers only.
Government has been making promises and promises to control price, but always fail on this front because they have given undue freedom and undue privileges to these business houses. I hope government will make all best efforts to give relief to general mass who are subjected to unbearable pain on account of sharp price rise in all commodities without proportionate rise in their monthly income.
India is said to be suffering from naxalism due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time.
India is said to be suffering from naxalism due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time.
Can merger and acquisition by banks help in ameliorating their problems of poverty ridden Indians?
I would like to draw the attention of learned FM Mr. Chidambram and PM Mr. Manmohan singh that late Indira Gandhi (Congress Party) had nationalized banks because private banks were hesitant to extend credit to common men. Villagers were deprived of banking facilities and common men were afraid of even entering in to bank. Private Banks were exploiting not only staff working in the banks but were also exploiting business houses. It will not be exaggeration to predict and say that the same Congress Party under the banner of UPA is dragging banking industry in pre-nationalization era.
Please keep in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succummed to malady and irregularity they accumulated , ant not because they were small banks.And as on today, healht of many state run bank is critically bad , but not due to the fact that they are small, but to mismanagement, rampant corruption , legal shortcomings and political exploitation.
Please keep in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succummed to malady and irregularity they accumulated , ant not because they were small banks.And as on today, healht of many state run bank is critically bad , but not due to the fact that they are small, but to mismanagement, rampant corruption , legal shortcomings and political exploitation.
P Chidambaram for merger of banks to create 2-3 global entities-Economic times 21st May 2013
NEW DELHI: Finance Minister P Chidambaram today favoured mergers in thebanking industry so that India can have two-three global sized banks.
"There are other sectors that may well need restructuring .... For example, some banks, including some public sector banks among 26 public sector banks that we have, may be better off merging.
"The need for two or three world sized banks in an economy that is poised to become one among the five largest in the world is rather obvious," he said in the inaugural lecture on the occasion of Annual Day of Competition Commission of India.
Favouring mergers of banks, he said, "We have seen bank mergers lead to too-big-to-fail entities."
Chidambaram further said while restructuring may be needed in some sectors, mergers may reduce competition in certain segments or geographies substantially and may alter competition between banks and non-banks. "Are our regulators well positioned to evaluate the consequences to competition in different sub-markets and across regulatory jurisdiction?," he asked.
In the annual monetary policy, the Reserve Bank of India had said it would release a discussion paper on banking structure in India by end-June 2013.
The discussion paper, among other things, would cover issues such as consolidation of large-sized banks with a view to having a few global sized banks and desirability and practicality of having small, localised banks as preferred vehicles for financial inclusion.
Country's largest lender State Bank of India (SBI) has acquired board approval for the merger of its remaining five associates with itself. It has already amalgamated two of its subsidiaries. SBI merged one of its associate, State Bank of Saurashtra, with itself in 2008 besides merging State Bank of Indore in 2010 with itself.
Referring to public sector enterprises, Chidambaram said in theory, they are not influenced by pure profits, and are an arm of the government and as such, concerns about excessive prices and anti-competitive practices may seem unwarranted.
Chidambaram further said PSUs often are handicapped by government regulations that limit their business independence and flexibility. Sometimes, to presumably compensate for these handicaps, PSUs are given special privileges - they are favoured in government contracts, for instance, he added.
"Favouring PSUs by the government can be anti-competitive, and create an un-level playing field. In the medium term, we have to remove the constraints on public sector firms that limit their ability to compete, even as we take away special privileges and make the playing field as level as possible," said the Finance Minister.
Chidambaram further said public sector firms often are handicapped by government regulations on recruitment, pay, procurement and pricing that limit their business independence and flexibility. He, however said these directives are rare and usually in the larger public interest, they can detract from firm efficiency and profitability.
Talking about the telecom sector, he said Indian call rates are amongst the cheapest in the world. Large volumes have of course helped, but those large volumes and the broad reach of communications would not have been possible if it were not for the low price emerging from the business model.
"However there are downsides. Quality has suffered. The sector is laden with debt. New players are loathe to enter and some existing ones are threatening to quit. Auction of spectrum has found no bidders in several circles," he said.
Going forward, one can foresee the continuing need for regulation to ensure competition, innovation, and low rates and better service for the consumers, he said.
"A fundamental restructuring of the players in the market may well occur. Of course, the sector has its own regulator, the TRAI, but the overarching role of CCI in competition policy cannot be ignored," Chidambaram added. He said given the high costs and rapid pace of technological development, telecom is a market where there are obvious gains from integration.
"There are other sectors that may well need restructuring .... For example, some banks, including some public sector banks among 26 public sector banks that we have, may be better off merging.
"The need for two or three world sized banks in an economy that is poised to become one among the five largest in the world is rather obvious," he said in the inaugural lecture on the occasion of Annual Day of Competition Commission of India.
Favouring mergers of banks, he said, "We have seen bank mergers lead to too-big-to-fail entities."
Chidambaram further said while restructuring may be needed in some sectors, mergers may reduce competition in certain segments or geographies substantially and may alter competition between banks and non-banks. "Are our regulators well positioned to evaluate the consequences to competition in different sub-markets and across regulatory jurisdiction?," he asked.
In the annual monetary policy, the Reserve Bank of India had said it would release a discussion paper on banking structure in India by end-June 2013.
The discussion paper, among other things, would cover issues such as consolidation of large-sized banks with a view to having a few global sized banks and desirability and practicality of having small, localised banks as preferred vehicles for financial inclusion.
Country's largest lender State Bank of India (SBI) has acquired board approval for the merger of its remaining five associates with itself. It has already amalgamated two of its subsidiaries. SBI merged one of its associate, State Bank of Saurashtra, with itself in 2008 besides merging State Bank of Indore in 2010 with itself.
Referring to public sector enterprises, Chidambaram said in theory, they are not influenced by pure profits, and are an arm of the government and as such, concerns about excessive prices and anti-competitive practices may seem unwarranted.
Chidambaram further said PSUs often are handicapped by government regulations that limit their business independence and flexibility. Sometimes, to presumably compensate for these handicaps, PSUs are given special privileges - they are favoured in government contracts, for instance, he added.
"Favouring PSUs by the government can be anti-competitive, and create an un-level playing field. In the medium term, we have to remove the constraints on public sector firms that limit their ability to compete, even as we take away special privileges and make the playing field as level as possible," said the Finance Minister.
Chidambaram further said public sector firms often are handicapped by government regulations on recruitment, pay, procurement and pricing that limit their business independence and flexibility. He, however said these directives are rare and usually in the larger public interest, they can detract from firm efficiency and profitability.
Talking about the telecom sector, he said Indian call rates are amongst the cheapest in the world. Large volumes have of course helped, but those large volumes and the broad reach of communications would not have been possible if it were not for the low price emerging from the business model.
"However there are downsides. Quality has suffered. The sector is laden with debt. New players are loathe to enter and some existing ones are threatening to quit. Auction of spectrum has found no bidders in several circles," he said.
Going forward, one can foresee the continuing need for regulation to ensure competition, innovation, and low rates and better service for the consumers, he said.
"A fundamental restructuring of the players in the market may well occur. Of course, the sector has its own regulator, the TRAI, but the overarching role of CCI in competition policy cannot be ignored," Chidambaram added. He said given the high costs and rapid pace of technological development, telecom is a market where there are obvious gains from integration.
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