CONSOLIDATION IN BANKING

Recently at a Banking meet held in Pune saw Finance Minister P.Chidambaram reiterating the need for consolidation among Indian Banks. He said we must create atleast 2-3 banks of international size as the chinese have done.

This issue has been flagged ever since financial sector reforms got underway with the opening up of the Indian economy in the early 1990s, receiving real prominance with the Second Narasimham Committee on Banking Sector Reforms in 1998.

It recommended merger among large Indian Banks, leading to a 3-tier structure where there would be 3 mega banks with global presence, 8- 10 National level banks and a large number of regional and local banks.

But all these have clearly not moved beyond the realm of ideas.While there are as many as 6 Chinese Banks among the World's Top 50 Banks ranked by total assets, that list does not have a single one from India, including venerable State Bank of India (SBI).

Problems in implementing the Consolidation Measures

1. The first of course, is the opposition from the unions. The unions fear that the mergers would lead to labour redundancies, this is why SBI is finding difficult to even merge with its associate banks. Their worries must be suitably dealt with.
2. The second problem has to do with leadership. The average tenure of a state-owned bank chairman is 2-3 years which is not enough to even come with a plan.
   
   The ICICI and HDFC Bank- are both in the private sector and whose chief have had sufficient tenures to conceive of long term visions and progress towards actually implementing them.
   The Government should certainly give more time and space to its own bank chiefs, enabling them to think strategically.

We need global sized banks to take on the might of global competition. What is the big difference after all between Punjab National Bank, for example, and Canara Bank, given that both are substantially owned by the Central Government? Their products are the same as indeed are their work culture and ethics.

Merger of all the PSBs and welding them into one piece as a monolith is the need of the hour. A solution is perhaps possible by negotiations with the unions, giving them assurances and gaining their confidence.

Meaning

*Consolidation (business), the mergers or acquisitions of many smaller companies into much larger ones.

*Monolith,  A large block of stone(not in this context).