Editorial

Banking on consolidation

| Updated on March 12, 2018

The consolidation of SBI and its subsidiaries should be seen only as the first of such steps that are necessary to strengthen the Indian banking sector.

Consolidation has been one of the buzzwords in the Indian banking sector for the last decade and more, but there has been little action to match the noise. There has been sporadic M&A (mergers and acquisitions) activity but mostly in the private sector. On the rare occasion that public sector banks were involved, it was more to do with a regulator-orchestrated bail-out for a private bank that had fallen into difficulties. With about 28 public sector banks in the country, there was always the feeling that we have one bank too many — even if, paradoxically, vast swathes of the country are under-banked. When Mr P. Chidambaram was finance minister, he never tired of telling bankers to get ready for consolidation. He asked them to get prepared for competition that was coming in from other shores and repeatedly underscored the need for greater size in order to service the needs of a fast growing economy. Mr Pranab Mukherjee has not said anything significantly different.

Reflecting these broad policy hints with parrot-like obedience, there was no shortage of pious statements of intent from various public sector bank chairmen. Yet, when it came to the actual execution, bankers were strangely paralysed. They looked to the Finance Ministry for cues while the Finance Ministry decided to play the neutral ‘facilitator' and completely left it to the respective boards to decide.

It is in this background that the proposed merger of SBI's subsidiaries with itself should be seen. Admittedly, this step is unlikely to cause a major change in the industry dynamics, except perhaps stop SBI's associates from snapping at their parent's heels. SBI's own brand will probably become more powerful than before. The addition of branches and employees will add about 30 per cent to its existing strength, which for a bank such as SBI, should be easy to digest. SBI, incidentally, has already ingested two of its subsidiaries, State Bank of Saurashtra and State Bank of Indore. The completion of the merger will be a logical denouement for an integration process that began many years ago. Already, their technology backbone is unified and there has been a virtual integration of sorts. That, therefore, puts paid to any fears of making different systems talk to one another. Organisation culture, an unseen but crucial aspect in any merger, should pose very few problems here as there is already regular lateral movement across the parent and associates at the senior management level. The global economic crisis has given Indian banks a window of opportunity to put their house in order before foreign banks mount their next invasion. This consolidation or ‘internal restructuring' should, therefore, be seen only as the first of such steps that are necessary to strengthen the Indian banking sector.

Published on February 25, 2011

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