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The UPA Government is going ahead with the move to merge public sector banks, especially SBI’s associate banks with the SBI. And bank employees and officers are going to strike work on August 18 and 20, as part of a series of agitations against bank mergers.

Bank mergers do not automatically make banks strong or globally competitive. They tend to create monopolistic structures and lead to market concentration, enabling banks to dictate terms to customers. Merger of PSBs will create an uncompetitive and unmanageable banking structure.

It is also wrong to assume that mergers will add to the strength of the merged entities beyond the level of added capital and the reserve base. A bank merger does not merely add to the balance-sheets or the number of branches. What makes mergers unacceptable is the difficulty of making human resources a homogenous entity. One sees no need for consolidation in the banking industry. A figure of 27 PSBs for a population of 110 crore is not a large number. Even if all the PSBs are merged into one bank, it cannot match some foreign banks’ size.

International experience shows that four out of five mergers fail because of wrong assumptions, over-stretched balance-sheets, relatively high cost of acquisitions and inadequate post-merger integration.

Bank mergers will not create mega-efficient super banks or any synergies but will definitely lead to chaos due to non-integration of bank employees and officers. Each merged bank will carry organisational inefficiencies and the additional costs will most probably over-shadow any synergies anticipated.

S. Raghunatha Prabhu Alappuzha

More Stories on : Letters | Public Sector Banks | Mergers & Acquisitions

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