about 3 years ago
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By Ruma Dubey

The big news expected today is the outcome of the Cabinet on PSU bank mergers. The news doing the rounds is that the Govt is working towards bringing down the number of PSU banks from the current 21 to 15.

The Govt has been thinking about this for some time now but looks like it got the encouragement it needed from the smooth merger of the five associate banks of SBI and Bharatiya Mahila Bank within itself. There was very little annoyance from the trade unions and this has made the Govt feel that its plan to bring down the number of PSU banks could actually go through. Merger, it seems is the remedy for all its pain and fallacies.

But that is really a very contrived and skewed way to resolve the crisis. The problem was never the size; it is not the balance sheet which was a problem but the poor lending decisions and more-then-required exposure to large companies. More than the size of the balance sheet, it is the bank’s credit appraisal process and the risk control systems which need a complete overhaul.

A big profitable bank taking over smaller stressed banks will put the bigger bank at a disadvantage. The case of SBI and the merger of its associates is different, they are as such subsidiaries, duplicating work and too small to really make any difference. Thus, in case of SBI merging its 5 associates into itself is the right move in the right direction. But what is not right is say, a PNB taking over Dena Bank or something in the similar vein.  Creating too big a bank to clear this mess is simply no solution. What is indeed required is reduction of interference by the Govt.

Really, why does the Govt need its representatives on PSU boards? How are they contributing to the growth of the bank? The CEOs unfortunately have to spend a lot of their precious time in looking at the way in which the political wind is blowing, kowtowing with ministers and their secretaries rather than concentrate on the business at hand. Those working in some of the PSU banks confer that their banks rarely and in some cases, never talk about business strategy of the bank in each city, no talk on clients and sectors to avoid, target criteria for clients and sectors; no research goes into the working; it runs traditionally, adding mere computers and ATMs and online banking has given them the appearance of moving with times; internally though it’s all very much the same.

Currently the PSU banks are still reeling under the stink of NPAs. This is the pain we will have to endure for the rot of corruption in the banking system. RBI has done the right thing by cleaning it all up at one go but how to ensure that the same mistakes do not repeat?

Unfortunately, what this now means is that small and medium term borrowers will pay the price – probes, rules and regulations will go up following this and they are ones who will be subjected to them. The top companies will continue to flout and make merry.

A systemic overhaul is required. Of course a change in the entire value system of India is needed but that seems like an impossible task…

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