Mumbai, April 20:
Small public sector banks, with assets of less than ₹2-lakh crore, should be readied for merger with five large PSBs, a Finance Ministry-appointed panel has recommended.
PSBs with less than ₹2 lakh crore assets (loans plus investments) include Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, Vijaya Bank, and United Bank of India.
The large PSBs, with the capability to acquire include Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank and Union Bank of India.
Ahead of the consolidation, the small PSBs will need to reorient their portfolio and improve operational efficiencies over the next one year. The Working Group on Consolidation and Restructuring of PSBs has proposed that as a means to improve profitability by leveraging economies of scale and avoiding duplication, all PSBs should share infrastructure, including back-office space, IT backbone and telecom contracts through a “shared service organisation.”
State Bank of India had kick-started the process of consolidating its associate banks almost seven years ago. In 2008 and 2010, India’s largest bank took over State Bank of Saurashtra and State Bank of Indore. Currently, it has five associate banks.
Most smaller public sector banks are caught in the middle. Having little differentiation, they focus on the same customer segments and have similar offerings.
Compared with private sector rivals, their net non-performing assets are four times more and the return on assets is just a third.
The banks will need to raise almost ₹4.50-lakh crore in Tier 1 capital (which includes ₹2.40-lakh crore equity capital) by March 2018 under Basel III norms.
The Working Group has suggested that over the next one year all PSBs focus on four areas — improving risk management capabilities, shifting to profitability-linked performance metrics, leveraging technology to reduce costs, and developing capital-light business models.
To rapidly reorient smaller PSBs, a performance assessment of their loan portfolio will be made so that they can exit areas where they are not strong or are unprofitable.
The next step for these banks would be to define the target customer segments.
After that, the large PSBs will identify the relevant acquisition targets based on complementary businesses and synergies. However, the panel suggested that any consolidation should be driven by market forces and decisions taken independently by the board of each bank.
There are 27 public sector banks, including State Bank of India’s five associate banks, in the country. As at March-end 2014, their share in total deposits and total advances was 77.22 per cent and 75.74 per cent, respectively.
Why merger of banks is needed-Danendra Jain
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, 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?
Branch Expansion And Closure of Loss Making Branches Cannot Run Together-Read by clicking on following Link
Tuesday, May 08, 2012
Competition,Consolidation and Merger of Banks
| Pradeep S Mehta: Will RBI be a better judge for banking mergers? |
| As a prudential regulator, the central bank cannot step into the shoes of the Competition Commission of India. What is needed is more cooperation between the two authorities |
Pradeep S Mehta / May 09, 2012, 00:09 IST
In the case of giving the Reserve Bank of India (RBI) power to review mergers in the banking sector, let me argue thus. The banking sector’s stability is critical for the whole economy and we have learnt bitter lessons from the regulatory failures in the mecca of capitalism: the US. Second, there are too many banks in the public sector in India that need to be consolidated. However, these are two different issues and should not be confused. In Brazil, the central bank reviews all banking mergers from the angle of financial stability, but only when the competition authority refers the matter to the bank after it carries out its own due diligence.
It has been argued that CCI does not have the expertise to regulate mergers and acquisitions (M&As) in the banking sector, and that it is still young. Recent experience shows that CCI has been efficient, and has also cleared a takeover by HSBC of RBS’s retail business in India, a deal worth $1.8 billion. It did not refer the matter to RBI since there was no need and later even RBI may clear the merger with come conditionalities in line with our international rights and obligations. In some other cases, CCI has consulted sector regulators like in telecom and electricity because it felt that their opinion was germane to merger cases.
RBI is a prudential regulator of banks, while CCI is a competition regulator for the whole economy, including the financial sector. Prudential regulation requires laying out and enforcing rules that limit risk-taking of banks, ensuring safety of depositors’ funds, stability of the financial sector and other public policy requirements. Thus, regulation of M&As by RBI would be determined by such benchmarks. Competition regulation of M&As in the banking sector, on the other hand, is a different matter. The review will take into account whether such a merger can lead to an “appreciable adverse effect” on competition. For illustration, it will seek to ensure that banks compete among themselves for customers by offering the best terms and interest rates for both deposits and borrowings. While CCI is not a prudential regulator, RBI is not a competition regulator, though both are required to promote competition and consumer interest.
Competition in the banking sector helps the economy hugely and, in India, we can see its benefits after deregulation.
Studies have found a negative relationship between an increase in the level of concentration and savings deposit rates, and a positive relationship between an increase in concentration and an increase in interest rates and accompanying conditionalities. The recent move by RBI to allow portability of bank accounts is a step forward to expose banks to competition since they currently have an incentive to extract more rents from customers owing to switching costs once they are dominant.
However, central banks normally abhor intense competition among banks so as to ensure stability in the sector and depositor security. Competition can lead to high risk-taking as banks fight for customers, thereby compromising on security; hence, there would be a trade-off with financial stability. It is, therefore, important that both authorities are given space to exercise their mandates in the banking sector.
The International Competition Network (ICN), the global association of competition authorities, calls for application of general competition rules to the banking sector by competition authorities in parallel to the rules enforced by the central bank. This practice is also followed by almost all countries with competition laws, save for a few, but qualified, exceptions. There is only one significant exception, that is, Turkey.
In Turkey, the competition law is not applicable to the banking sector, but only if the total assets of the banks to be subjected to merger does not exceed 20 per cent of the market share. In Italy, although the competition law applies to the banking sector, it is applied by the central bank. The situation in the US is unique. Although banking mergers are exempted from competition laws, once the relevant agency (there are four of them, which includes the Federal Reserve) has approved a merger, the Anti-Trust Division of Department of Justice can file a suit within 30 days to block the transaction. If such a suit is filed, the parties are barred from consummating the merger until a federal district court conducts a review of the transaction.
In the case of failing banks, unquestionably, the mergers are allowed swiftly as in the case of Global Trust Bank in India that was taken over by the Oriental Bank of Commerce in 2004. There can also be a one-time exception from competition rules allowed in specific cases like in the UK in 2009 when Halifax Bank of Scotland was merged with Lloyds TSB after the earlier turned turtle following the financial crisis.
There is room, therefore, for both CCI and RBI in the banking sector, and the economy stands to benefit if both are allowed to exercise their powers. Genuine concerns such as the effects of delays from CCI in making decisions, especially in case of forced mergers, should not be used as justification for total but rather conditional exemptions. Just like in other countries, CCI can handle M&As in the sector with no delays only if there is cooperation between RBI and CCI. The sooner the two regulators sit down and work out a cooperation agreement the better for the whole economy, and one hopes that this call for exemptions will not be a basis for an adverse relationship between the two.
The author is the Secretary General of CUTS International and can be reached at psm@cuts.org.
My views are given below
Needless mergers of banks
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 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? 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 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. Does any one in the government or in RBI mean 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. SATURDAY, APRIL 28, 2012http://jaindanendra.blogspot.in/2012/04/service-area-approach-and-financial.html
Folowing is the blog submitted five years ago , link given above this line
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 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? 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 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. Does any one in the government or in RBI mean 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. 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. 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. 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 and PM 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 was 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 succumbed to malady and irregularity they accumulated, and not because they were small banks. Giant banks, Lehman Brothers, AIG failed not because they were big but they followed wrong policies and committed misadventure in delivery of credit and in making investments. In India I doubt the honesty and integrity of government in their efforts for merger, acquisition and consolidation of banks because they know the quantum of malady and bad assets hidden behind the rosy balance sheets of PSBs.Otherwise there is no reason for providing capital infusion to various weak banks from time to time. It is their political agenda to save the banks from exposure of their reality when the misdeeds increases to such a large extent that it punctures the tyre of running banks. They are trying to divert the attention of public from inherent weaknesses of PSBs and this is why they are not agreeable to respectable wage revision of bank employees even after two year long dialogue with union leaders. Exodus of talented employees and non entry of well qualified person in PSB banks is also a vital reason behind growing weakness of Banks. On the contrary private banks like ICICI and HDFC banks have grown to such a large extent in last 15 years of their existence that even 100 year old PSBs are facing challenge for survival.
Further any merger of banks may cause more chaos and confusion that solve any problem. Different banks have different identity and its unique geographical concentration or expansion and hence merger of two banks with different characteristics and different process of promotions and transfers will create more conflicts, more industrial disturbance and public grievance. There are banks where management gives ten promotions in 30 years and on the contrary there are banks where even one promotion is not given in 30 years. Some employees are south centered and some are confined to Metro Branches in their entire tenure in banks. There are various points of conflicts which banks have to settle before contemplating acquisition and mergers.
Pros And Cons Of Merger Danendra Jain Government plans to rate PSU banks for fund infusion-DNA The government is looking at rating public sector banks going ahead for capital infusion for which these banks will be required to fulfil criteria, which are under discussion, such as the quantum of retail loans they disburse, the number of Jan Dhan accounts opened besides the return on assets and return on equity they earn. The proposed moved may lead to a big push for retail loans by PSU banks with special offers to woo customers. The finance ministry is setting up a rating system for public sector banks where their performance will be measured. Still in the planning stage, some of the criteria that are under discussion for the rating are the number of Jan Dhan accounts and financial inclusion programmes that banks have implemented, and the quantum of retail advances undertaken by them against their corporate advances. http://www.dnaindia.com/money/report-government-plans-to-rate-psu-banks-for-fund-infusion-2079218 Private sector execs give top slots at PSU banks a miss-Hindustan Times 21.04.2015 There have been no takers from the private sector for the top position in leading public sector banks, including Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI Bank. The government, which opened the doors to private sector executives to take over as chiefs in public sector banks, has got a lukewarm response for the same. The finance ministry is now looking to relax the eligibility criteria for applicants, including lowering the age criteria, and even doing away with the requirement for experience as a board member. “The finance ministry is looking to relax the eligibility criteria soon... the criteria may have been a little stiff, which acted as a dampening factor,” a senior finance ministry official told HT. The Appointments Committee of Cabinet (ACC), which approved the criteria and method of selection earlier this year, said candidates should have at least 15 years of mainstream banking experience, of which a minimum three should be at the board level. In a notification, the finance ministry said salaries would be “flexible” and candidates should be in the age group of 45 to 55 years. They would have a fixed tenure of three years, subject to the normal age of superannuation of 60 years. The government’s move to appoint private sector executives at the top posts in public sector banks comes at a time when the banking sector has seen a surge in non-performing assets — loans that do not yield returns — and slowing credit demand. While state-owned banks have been hiring talent from outside for various other roles, the top slot was always reserved for insiders. |
A Good blog always comes-up with new and exciting information, thank you for sharing useful content.
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