Central Government UPA 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 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, whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only?
Has government forgotten the social objective of banks completely?
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 is not due to financing made by banks to small traders and farmers but only due to bulk financing made to big corporate houses, to
real estate developers and to infra structure developers.
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.
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.
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