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Former chairman of Axis Bank PJ Nayak, who headed a government panel on banking reforms, has criticised government’s move to consolidate state-run banks which are facing serious asset quality issues, saying it will only lead to bigger weaker banks.
The government has reportedly identified some of the weak state-run banks to be merged with large ones.
But nothing has moved to any concrete plans.
“There is no meaning in merging a weak big bank with a small weak bank, which will result in having an even a bigger weak bank. I would rather vote for a small weak bank being merged with a big strong bank,” Nayak said, while addressing an event by the ISB Alumni Association here yesterday.
As of the June quarter, total stressed assets and restructured loans at state—run banks rose to 13.4 per cent, while the same was only 3.4 per cent at private sector banks.
“There are 11 banks which are having stressed assets over 15 per cent and one bank with stressed assets of over 19 per cent,” he said, adding “in such circumstances it is difficult to say which bank is strong enough to acquire a small weak bank.”
He also criticised private sector banks for doing only easy lending saying it was only public sector lenders which were doing difficult lending and cited the example of 98 per cent of the Jan Dhan accounts being with state—run banks.
On the private sector banks he said he doesn’t see any uniform development in them, saying “while on the liability side we have seen uniformity among banks when it comes to the assets side, various banks are having difference approaches.”
On the MFIs entering the banking sector, he said this will give more focus on liability side for doing business.
“As MFIs like Bandhan (which has converted into a commercial bank) have been focusing on the bottom of the pyramid their focus will continue to be on liability side, and not asset side,” he said, adding by this way these MFIs will be able to become profitable in due course of time and take business even from new generation private sector banks.
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