Issue No: 21
Moneta
The
government
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.
July 2017
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.
―We need to question the logic of
public sector mergers,‖ says Ravi
Aron, a professor of information
systems at Johns Hopkins Carey
Business
School.
―Usually
efficiencies are achieved – if ever
they are – by eliminating redundant
functions and increasing productivity.
To achieve these gains, it is
necessary to reduce costs through
layoffs. But in India retrenchment is
taboo – both politically and through
law. The Industrial Disputes Act
makes it nearly impossible to effect
large layoffs in non-managerial
workers.‖
Here we would like to address the
quote from Jitendra Singh
“I believe it would be a mistake to
only look at recent history … and
ask what should be done next.”
– Jitendra V. Singh
Currently, 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.
Exactly what efficiencies will be
gained by mergers between public
sector companies? Before we
discuss scale economies and
synergies, it is important to
understand what they mean. For
scale economies to exist, it is
necessary to reduce the average unit
cost of production of a product or
service with increasing volumes.
That reduction in costs of production
(more generally operating costs) can
happen only if labour costs can be
pared down. This is very difficult,
given the Industrial Disputes Act.
Perhaps they may slow down future
hiring and drive some gains through
voluntary retirement schemes. These
gains are not likely to be very high.
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
Warehousing
non-performing
corporate loans, currently spread
over a score of banks, into fewer,
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