Is the Finance Ministry preparing the ground for consolidation among public sector banks (PSBs)? Its recent missive to the 26 PSBs seems to suggest so.
The Ministry said there is a need for continuous interaction between these banks to improve their functioning.
This can be achieved by sharing experiences and lessons learnt which in turn will help fine-tune internal policies and procedures.
Seven large PSBs – State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BoI), Union Bank of India, Central Bank of India and Canara Bank – have been assigned the responsibility of co-ordinating the activities of 19 other PSBs in six specific areas of operation.
The areas of operation with scope for functional improvement human resources, business process re-engineering, e-governance, internal audit for fraud detection and protection, recovery, and asset-liability management.
The 26 banks have been divided into seven groups. SBI has been given the responsibility of co-ordinating the functioning of its five associate banks.
PNB is the co-ordinator for Dena Bank and Vijaya Bank, BoB for IDBI Bank and UCO Bank, BoI for Oriental Bank of Commerce and Andhra Bank, Union Bank of India for United Bank of India and Punjab & Sind Bank, Central Bank of India for Indian Bank, Allahabad Bank and Bank of Maharashtra, and Canara Bank for Indian Overseas Bank, Syndicate Bank and Corporation Bank.
The group coordinators of the banks would interact with the Ministry on a quarterly basis.
It may be pertinent to note that the RBI-appointed Narasimham Committee on Banking Sector Reforms had, in 1998, recommended restructuring of the domestic banking system.
The committee recommended that the banking landscape should evolve in such a way that there should be three to four large banks, which could become international in character, and eight to ten national banks and local banks confined to specific regions. Rural banks, including Regional Rural Banks, are confined to rural areas.
Though it has been 14 years since the Narasimham Committee report was put together, there has been no serious attempt at consolidation in the public sector banking space. SBI, which has assimilated two of its associate banks – State Bank of Saurashtra and State Bank of Indore – is the only exception.
Industry observers say that consolidating the banking sector will lead to economies of scale, greater efficiency and help resultant entities take higher loan exposures in a growing economy.
According to the latest RBI data, as of December-end 2011, public sector banks accounted for about 74 per cent of deposits and advances in the banking sector.
Keywords: Bancon 2012, Finance Ministry, consolidation, public sector banks, PSBs, interaction between 26 banks, improve functioning, sharing experiences, fine-tune internal policies, procedures, seven large PSBs, SBI, PNB, BoB, BoI, Union Bank of India, Central Bank of India and Canara Bank, given responsibility of co-ordinating activities of 19 other PSBs,
Comments:
The whole Banking Sector comprising of Nationalised Banks and other
Scheduled Commercial Banks like Old Generation or New Generation
Private Sector or Cooperative Sector are already integrated partly in
functions like ATM, Priority Sector targets through SLBC and Lead
Banks. Planning a common approach or coordination per se is different
and looking at such move as precursor for consolidation is different.
So far neither Trade Unions nor others have seriously looked at this
move of ‘hand holding’ as forerunner for consolidation and hence
reactions are muted. The issues go beyond Trade Unions as
traditionally Tamil Nadu was in the forefront in banking and now Tamil
Nadu based banks have no role in coordinating any other banks. This
may not also be politically acceptable if “co-ordination” is a move
towards consolidation. Tamil Nadu has mighty blend of competition
with 2 Nationalized Banks having their Headquarters at Chennai. For
all practical purposes, there is only one south based bank given such
lead coordinator role.
Beyond this also “Consolidation” is not a panacea. It is a move that
will only help Private Players by reducing competition among them. In
its reported move for allowing private players, government has no
restriction in number and its reported norms do not ensure big size if
a “consolidation” is a panacea. If “BIG” is panacea, it can best be
done by merging larger Private Sector Banks with SBI and otherwise.
World wide it is established that ‘big is not beautiful’ but ‘small is
safe’. Maintaining larger role of Nationalised Banks with existing or
more number will be a “safety wall” against any recession the world
may face again. Let us not forget that only recently India could face
better economic meltdown and stand against world recession. Good
number of Nationalized Banks are also needed to hold equilibrium in
service and profit motive. Even by consolidation of all Nationalised
Banks in India, a world-size bank cannot come up and it is not
necessary also as in Indian context “Financial Inclusion” requires
more attention. To achieve final inclusion, we need service
orientation and with profitability as their basic aim. Private Sector
cannot be expected to concentrate more on this area than their
symbolic activities. To support this view, the records of such banks
in direct lending in Private Sector has always been lesser. Hence
present number of Nationalized Banks deserve to be improved with
Nationalization of Private Sector Banks which are more than 50 years
old. India is big enough to have more Nationalized Banks to serve the
under/ less-privileged and moves to the contrary are inimical to the
interest of the country per se.
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