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.)
Keywords: PSBs and consolidation, PSBs and competition
Comments:
Absolutely. PC has been stating this even when he was FM earlier. But
the TUs and the Managers resist such mergers because of parochial
outlook. Now that the Govt. is likely to win the battle of numbers in
the parliament and the Left Unions's cacophony can be more easily
ignored , the Govt. should boldly announce mergers so that at least one
or two banks in India figure in the top fifty list of banks of the
world. The banking industry at present is not representative of India's
relative position in the world economy.
A thought-provoking article. At the outset I do not agree with the
author’s view that so many banks under much the same ownership pattern
is ‘anachronism, antideluvian besides being unproductive and wasteful.
ATHis argument is not acceptable and is indeed debatable. Is dull
uniformity is what is to be followed? See the variety of decision
making of the govt civil service and industry in thelast fifty years.
In 1956, to the then minister merging 243 insurers appealed and the
result a monolithic and successful LIC. (Even though the govt. tried
to undo this in early eighties by a bizarre proposal to break the LIC
into five units, the brain child of the finance ministry. Thank God,
Rajiv Gandhi , who became the PM scuttled this move.) When banks were
taken over in a binge of socialistic fervor, broadly the banks were
allowed to operate under their own names. NO doubt a good move and
time has proved this. (continues)
Later, when general insuracne was nationalsied, the minister chose to
merge the general insurers into four leading companies. This too was a
good example. If I remember, the parliamentary debates of those days,
these different approaches were also pointed out by the minister. The
author names three banks and asks what is the difference. Yes, there
are differences in service. I stay in a street which virtually can be
termed Bank Street. It has branches of several PSBs.I visit a few of
them for doing my and my children’s banking work. There is crowd in a
few and no crowd in some =because the name and service matters to the
customers. Even those who are sold to the idea of big banks should now
revisit their theme. These days with the banking debacles, there is
the phenomenon of ‘too big to fail’ necessitating infusion ofpublic
money into them to make them survive. We should be cautious and profit
by western experiences. (contineusZ)
Whenever I pass through Bangalore’s Kempegowda Road I see sign boards
put up by various nationalized banks. If one bank claims to be wholly
owned by Government of India other says it is a nationalized bank and
yet another claims to be an associate of the State bank of India and
all of them are engaged in cutting each other’s throats. Is there any
wisdom in this? This question was posed by P.S.Sundaresan the then
General secretary of Karnataka Pradesh Bank Employees Federation in
its central committee meeting somewhere during early eighties. For a
number of years after the nationalization of major banks resolutions
demanding nationalization of all banks and setting up a banking
corporation on the lines of LIC of India was being passed invariably
in general body meetings of all the trade unions in the banking
industry. Our honorable finance minister Mr.chidambaram wants exactly
that. So what are the trade unions opposing now? Their fears regarding
consolidation seem to be irrational.
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