The Hindu Business Line : Time not ripe for mergers in banking industry: Experts

"TIME is not ripe for merger and acquisition (M&A) in the banking industry in the way the Government wants them to happen" was the opinion of experts at a panel discussion on "Should banks be merged?" The panel discussion was organised by the Corporation Bank Officers' Organisation (CBOO) in Udupi on Saturday. .

The former Chairman and Chief Executive Officer of Lakshmi Vilas Bank Ltd, Karur, Mr K.R. Shenoy, who represented bankers, felt that time had not come for the creation of small number of large banks. The landscape is varied for small number of large banks, and there are compulsions at global, national and regional levels for the banking industry.

Mr G. Prabhakar Nayak, a chartered accountant by profession, who represented the customers, said a customer does not find any need for mergers. He gives importance for the service rendered by the bank, and large banks tend to cater to the needs of big customers, forgetting the needs of the small ones.

Prof Krishnamurthy, who represented academicians, said that there is no need for mergers among public sector banks. However, the Government could think of merging sick private sector banks. Alternatively, they could also be merged with the public sector banks, he said.

Mr T.R. Bhat, Joint General Secretary of All-India Bank Officers' Confederation (AIBOC), who represented trade unions, said that he was not convinced about the statements on small number of large banks.

He wanted to know if the merger would help face global competition. The largest banking entity in India, the State Bank group, is small compared to the Citi Bank group of the US and some Japanese banks. He wondered if these US and Japanese banks allow Indian banks to enter their terrain.

Merger and efficiency: Prof G.V. Joshi, Coordinator of Corporation Bank Chair in Bank Management at Mangalore University, who moderated the discussion, wanted to know if merger would improve efficiency. Mr Shenoy and Prof Krishnamurthy said that no study has established correlation between efficiency and merger.

Opposing the oft-quoted argument that larger the size greater will be the efficiency, Mr Nayak said efficiency of any entity, irrespective of its size, depends on the human resources it has. Mr Bhat said that the Japanese banks have highest NPAs in spite of being large in size. On the other hand, 7,000 small banks in the US are performing well compared to the large banks there.

Global players: To a query on whether the size will help the banks to become global players, Mr Bhat said that the total capital of the Citi group of the US is $67 billion, where as it is only $6.7 billion for the State Bank group. The largest banking group of India has only 10 per cent of the capital of one US bank. "Even if one takes the total capital of all other public sector banks in India, it will come to around only $13 billion," he said.

Mr Shenoy said that size of balance sheet is a must for becoming an international player.

Mr Nayak said that the size is a parameter for pre-qualification for entering the global market. "In India, we consider the person behind the successful operation of an entity than its size," he said.

When the panellists were asked to detail about the alternatives for mergers, Mr Shenoy said that banks should give attention for setting right their weaknesses, and improve efficiency. Apart from good professional governance, there should be cordial relationship between the owner, customer and the staff of the bank.

Mr Bhat suggested that regulatory mechanism be strengthened. He also stressed the need for greater professional autonomy.

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