Issue No: 21
Moneta
Bigger piles will serve no purpose
unless there's some guarantee of
extra capital for the unlucky
institutions that will end up absorbing
the weaker ones, or at least a go-
ahead for the merged entities to shed
superfluous workers.
July 2017
Earnings and lousy asset-quality
reports, the optimism dies.
India's state-run banking system now
resembles one giant bad bank.
Unless it can pony up extra capital,
there's no need for the government
to create a new institution to park
soured loans. By the same token, the
push for weak banks to be merged
with the not-so-weak is also
senseless.
Currently SBI is also going through
same pain. After absorbing smaller
associated lenders, it now has
280,000 employees -- 70,000 more
than before the merger -- and a cost-
to-income ratio of 54%. Its non-
performing asset ratio is approaching
10%, almost 3 percentage points
higher than pre-transaction. In case
of other PSU mergers, It is going to
even worse.
Of course a change in the entire
value system of India is needed,
for that a systemic overhaul is
required. According to me, “The
question is not which firms should
be merged. Rather it is about
which sectors the government
should exit”
Nothing that the central bank and the
government have thrown at cleaning
up the $191 billion mess has worked.
News that something is being done
makes investors happy for a while
and then, with another quarter of bad
- Harshal Rachchh
NMIMS, PGDM 2016-18
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