Want to rescue a sick bank? Well, merge it with a healthy one. There is a convincing case for the merger of Indian banks so that they can compete universally. But a forced merger is as fatal as a forced marriage.
So three PSU banks— Bank of Baroda, Dena Bank and Vijaya Bank – will now amalgamate to India’s third-biggest lender after SBI and PNB. The brains behind this were lawyer Arun Jaitley, CA Piyush Goyal and the ‘economist’ Nirmala Sitharaman.
The move to amalgamate three banks may have instant rewards, but critical issues remain unresolved. Clearly, the government wants to take the merger route to consolidate the banking industry. This does not help overcome bad loans. Such mergers give birth to a weaker bank than the original pre-amalgamation of two powerful banks.
Industry specialists are reminding the sad stories of earlier mergers: of New Bank of India with Punjab National Bank, of Global Trust Bank with Oriental Bank of Commerce… They also point out that the bad loans of SBI enlarged after it acquired five associate banks. Former Governor Raghuram G Rajan never liked these kinds of mergers and raised the flag numerous times. He preferred merging weak banks only when their health improved.
Only proficient management minus political meddling can revitalise injured banks.
itter sugar-coated pill for Bank of Baroda
When the government proposed the amalgamation of Dena Bank with Bank of Baroda, the latter rejected it because the former healthwise has been in the Intensive Care Unit for a long time. Further, it failed to exhibit any signs of recovery. But typical of this government, it pushed the offer down the throat of the disagreeing bank by candy-coating the proposal to make it gorgeous by inserting Vijaya Bank. The added attraction, Vijaya Bank is the sole profit-making state-owned bank having the lowest chunk of bad loans.
