Finance Minister P. Chidambaram is right when he says Indian banks should not fight shy of consolidation because we need global-sized banks to take on the might of foreign competition, both in our home turf as well as abroad. And this is not the first time he has made this suggestion.

But one wonders why he has not impressed upon his own Government to kick-start the process of consolidation by starting off with public sector banks (PSB).

What is the big difference, after all, between Punjab National Bank, for example, and Canara Bank, given that both are substantially owned by the Central Government?

To be sure, they are headquartered and rooted at different places, thereby evoking regional images and linkages. But that is about all; their products are the same, as indeed are their work culture and ethics.

In a milieu where brick-and-mortar banks are fading out of existence gradually in advanced countries, the presence of so many banks owned substantially by the same person is an anachronism and antediluvian, besides being counterproductive and wasteful.

Merger of all PSBs and welding them into one piece as a monolith is the need of the hour. There are enough private sector and foreign banks to compete with it and keep it on its toes. The resources and energies frittered away by persisting with the farce of banks owned by the same person are there for all to see. ATMs have mushroomed all over our urban landscape, with many of them attracting hardly any customers.

It is not uncommon to find five or six ATMs of various banks inside a small shopping complex. The gay abandon with which ATMs are allowed to sprout has got something to do with the cavalier attitude of banks. One wonders why the concept of ATM sharing has not found resonance amongst banks in the country.

To be sure, one is allowed to withdraw up to Rs 10,000 from ATMs of banks where one does not hold accounts, but that is not the same as ATM share.

If all the PSBs agree, they can easily manage with one ATM for all of them at a shopping complex instead of multiplying themselves unproductively in a spirit of me-too. Indeed, this could herald the beginning of the process of the more full-fledged seamless merger.

Resistance to merger

The resistance to the idea of merger of PSBs seems to be as much from unions as from managements themselves.

When banks are welded together, the present heads of various banks would at best be reduced to regional bosses or deputies to the CEO of the combined entity. The loss of power and pelf could be galling to them. And as far as unions are concerned, they are never sold on the idea of merger because they perceive the distinct possibility of many of their members losing jobs.

This is a genuine fear, but can be addressed by the monolithic bank fanning out to rural areas, in which case the surplus staff can be gainfully employed.

It is common knowledge that banking penetration is abysmally low in rural areas even as it dots our urban-scape in an unseemly clutter. This is clearly lopsided.

The RBI’s numerous initiatives such as banking correspondents have not borne fruit. There is no option but to open branches in rural areas and hard-sell the idea of banking to the benighted masses there.

As a sweetener, rural postings may be rewarded with the novel incentive of a substantial rural allowance to win over resistance, both to rural postings and mergers.

Costly duplication

State Bank of India may be a big bank by Indian standards but small by international standards — is the smug and pedantic refrain among policy wonks and in seminaries. But we must walk the talk.

The process of consolidation would axe both the dead wood and cleanse the balance-sheets of various banks that hide substantial non-performing assets.

Their combined resources can be more gainfully employed, especially in beefing up technology instead of in the wasteful race for one-upmanship.

Costly duplication can be eschewed both in terms of manpower and banking infrastructure.

It is not only the mushrooming ATMs that are eyesore. In many towns, a small street is home to as many as ten banks with most of them doing sub-optimum business.

Since branch-wise profitability analysis is hardly ever done and even if done, glossed over, the futility of opening another PSB, where one already exists, is lost on both the government and managements.

A mean and lean consolidated PSB can take on competition from both private sector and foreign banks. An MTNL is now more alive to consumer criticism and responds faster than it used to when it enjoyed monopoly.

Therefore, the need of the hour is not to privatise government banks but to fuse them together not only to end the farce of them taking on each other, but also to offer competition to the supposedly fleet-footed and more imaginative private banks.

(The author is a New Delhi-based chartered accountant.)

(This article was published on November 27, 2012)
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