|
Are Mergers Really
Needed?
by
Danendra Jain &
Ganaraj Choumuhani , Agartala
Central Government has been building pressure on
banks to make best efforts for merger and acquisition. But I am unable to
understand the motive behind it in Indian perspective. Finance Minister has
said that through consolidation, financial powers of banks will improve and
they will not only be able to augment efficiency and help in GDP growth but
also get success in competing with International big banks. Here the
million dollar question arises whether Late Indira Gandhi had nationalized
banks to compete with International banks, whether banks are meant to extend
credit in thousands of crores to a few hundred merchants or manufacturers
only?
Has government forgotten the social objective of banks completely?
Is it possible for a government to survive by discarding the interest of
common men, farmers, small traders in India? Is it necessary for India
to have bigger banks to extend credit to farmers and small traders who
together constitutes 95% of population and without whose support even
economic viability of large projects would be at stake?
It is important to mention here that there is sharp rise in loan portfolio
or visible growth in advances of banks in general is not due to financing
made by banks to small traders and farmers but only due to bulk financing
made to big corporate houses, to real estate developers and to infra
structure developers.
Does any one in the government or in RBI mean that by merger and enhancing
powers of banks, there will be equitable GDP growth in country like India?
Even in America where big banks are many, one out of every seven Americans
starves and struggle for earning their bread and butter for at least
survival. In India the position is worse than that in USA. In India nine out
of every ten Indians are unable to earn sufficient money even for respectful
living. Considerable large proportion of Indian population is
suffering from mal-nutrition; they die of curable diseases in want of proper
medical assistance and they remain unemployed in want of adequate
opportunities. This is India where even federal structure of the country is
at stake due to largely growing unemployment and where person like Raj
Thakre has been trying hard to disallow Non-marathi to seek employment in
Maharashtra and Shiv Raj Chouhan CM says he would not employment to Biharis
and North Indian in the state of MP. Besides in majority of villages, small
towns and cities there is no proper sanitation facilities, acute scarcity of
water and electricity, crisis for medical treatment and what not. This is
why I reiterate that Indian environment is different from other developed
nations and hence need unique treatment.
It is worthwhile to add here that USA
government have realized after fall of big banks and financial Institution
during last year that management of big banks is very difficult compared to
smaller ones. Still there are about 8000 smaller banks functioning in USA to
serve common men. It is also true that 125 banks became bankrupt or closed
their shutters during the current year in USA.
If we talk of India we have less than 30 public sector banks and they are
said to be in better health position. They are well scattered in every nook
and corner of the country to serve Indians in general. They have to be
encouraged to extend maximum help to small borrowers. They cannot
extend any better help to poor person after merger of banks. Then what is
the need of merger and acquisition? Why is government bent upon merger Need
of the hour is to make them able to cater to the needs of common men.
Even if government feels the necessity of
having large banks with huge capital to compete with foreign banks, they can
choose to have one or two like SBI or PNB
(after merger of SBI with associate banks I think capital size of SBI will
be comparable with their foreign counterparts and similarly after merger of
PNB with some suitable bank), At least other banks should be left
untouched to serve common men and forget big projects, bulk financing,
corporate borrowers completely and concentrate only on small and mid size
borrowers i.e. credit upto ten lacs.
Even if we leave aside the social objective, it is not commercially
proposition to build pressure (frequent request by FM or RBI is enough to
build pressure) on banks to go for merger and acquisition especially when
government have granted economic freedom to individual banks in the era of
economic reformation , liberalization and globalization When need will arise
banks will themselves strive hard to grow bigger to survive. As of now banks
in India are said to be safer than foreign banks. Even government has
admitted it repeatedly.
Inspite of all, if government still consider it
better to go for merger , I would like to suggest our Finance Minister to
merge all PSBs including SBI and make them one entity like Income Tax
department and other departments of Government of India so that there be no
unwarranted interest rate war, no case of multiple financing, no case of
take over at the cost of bank’s interest and no unhealthy competition as
prevalent in banking industry. There will be unified effort to recover the
money from recalcitrant borrowers. Banks will
be able to check money laundering in a better way .People will not get
opportunity to park their black money in different branches of different
banks.
Need of the hour is to strengthen the existing structure of banks, make them
more and more efficient and enthusiastic. Government should make efforts for
repayment of loan and for this purpose make water tight laws to ensure cent
percent recovery of loan from willful defaulters so that proportion of dead
money in bank’s balance sheet comes down and they can afford and generate
will to make finance to common men. Present scenario is that branch manager
of every bank’s branch is afraid of extending credit to small borrowers in
fear of account going bad and lastly added to Non Performing Asset. Need of
the hour is to avoid political intervention in banking affairs and to resort
to healthy norms for financing without any fear of target achievement.
To add fuel to fire all banks are suffering
from staff shortage and as a consequence there is no monitoring on existing
borrowal accounts and gradually service quality in banks at many branches is
deteriorating in want of adequate staff.
Banks are even unable to redeploy the existing surplus
staff at Metro branches due to protest from powerful employees union.
Last but not the least; bitter truth is that big business houses are getting
all sorts of help from the government, from the banks and from all corners
but all at the cost of poor and middle family.
Rich business houses are producing, hoarding and realizing maximum profit on
their products and it will not exaggeration to
say that the present trend of rising price is caused by these profit makers
only. Government has been making promises and promises to control price, but
always fail on this front because they have given undue freedom and undue
privileges to these business houses. I hope government will make all best
efforts to give relief to general mass who are subjected to unbearable pain
on account of sharp price rise in all commodities without proportionate rise
in their monthly income.
India is said to be suffering from naxalism due to increasing poverty and
due to the fact that they are denied their legitimate right and they are
even deprived of justice in proper time. Can merger and acquisition by banks
help in ameliorating their problems of poverty ridden Indians? I would like
to draw the attention of learned FM and PM that late Indira Gandhi (Congress
Party) had nationalized banks because private banks were hesitant to extend
credit to common men, villagers were deprived of banking facilities and
common men was afraid of even entering in to bank. Private Banks were
exploiting not only staff working in the banks but were also exploiting
business houses. It will not be exaggeration to predict and say that the
same Congress Party under the banner of UPA is dragging banking industry in
pre-nationalization era.
Please keep in mind that during reformation era 23 banks were forcefully
merged to bigger banks by government of India because they succumbed to
malady and irregularity they accumulated , and not because they were small
banks. Giant banks, Lehman Brothers, AIG failed not because they were big
but they followed wrong policies and committed misadventure in delivery of
credit and in making investments.
In India I doubt the honesty and integrity of government in their efforts
for merger, acquisition and consolidation of banks because they know the
quantum of malady and bad assets hidden behind the rosy balance sheets of
PSBs. Otherwise there is no reason for providing capital infusion to
various weak banks from time to time. It is their political agenda to save
the banks from exposure of their reality when the misdeeds increases to such
a large extent that it punctures the tyre of running banks. They are
trying to divert the attention of public from inherent weaknesses of PSBs
and this is why they are not agreeable to respectable wage revision of bank
employees even after two year long dialogue with union leaders. Exodus of
talented employees and non entry of well qualified person in PSB banks is
also a vital reason behind growing weakness of Banks. On the contrary
private banks like ICICI and HDFC banks have grown to such a large extent in
last 15 years of their existence that even 100 year old PSBs are facing
challenge for survival.
|
