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A relook on Banks Consolidation

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August 17, 2017

What is the issue?

  • SBI recently merged its five associate banks and Bharatiya Mahila Bank (BMB) with itself.
  • The release of first quarterly performance of the merged entity calls for a rethink on the government's consolidation strategy.

What is the impact?

  • The consolidation has weakened the original standalone entity of the SBI in terms of NPAs.
  • The merger took a heavy toll on the bank’s recovery.
  • The deterioration in asset quality was essentially because of the merger.
  • SBI's lending growth has slowed down.

Is consolidation the right choice?

  • In SBI’s case the conflicts and disparities of work culture might have been fewer.
  • But in case of an increased geographical reach for a merged entity in  future, bridging the work culture gap at operational level would be challenging.
  • The problems faced by Indian public sector banks run deeper, and mergers cannot provide a quick fix.
  • The solution requires better recapitalisation as well as governance reforms so that the banks' shortcomings are sorted out.

 

Source: Business Standard

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