Real bank merger would take far longer
Last week’s amalgamation of 10 state-run banks into four much larger banks has been in the offing for a long time. The logic for it has been long debated, but the timing was a bit of a surprise given that India is in a state of lockdown and effecting the merger under such circumstances would be a tough job. Creating strong mega-banks has been a pet project of the finance ministry, the ‘owner’ of the banks, so to speak. North Block has long held that creating strong mega banks has to be the natural precursor to opening up the banking space to foreign competition and has been working towards that end for nearly two decades now, regardless of the party in power.
SBI’s mega merger with all its subsidiaries, completed three years ago, was the expected first big step towards this. However, a bad loans crisis exploded soon after and the next two years were spent fighting to improve the banking sector’s health before any new big measure could be contemplated. But the pressures in trade negotiations kept mounting from India’s partners. They wanted the last frontier—India’s financial markets—to be opened up to them as part of any mega trade deal. At the same time, the idea grew that in banking as a sector, ‘big was more beautiful than small’, as bigger banks had deeper pockets that would allow them to pull through any unforeseen crisis.
The decision to finally create four big banks came about last September. But since then both the finance ministry and banks have been firefighting to help the economy get through a prolonged slowdown and since March, through a trying lockdown whose end is still not in sight. Effecting a merger is a difficult job. Not only have banks that have different processes got to adopt a uniform practice, branches have to be rationalised as it makes no sense for the same bank to have three branches in the same neighbourhood, in some cases in the same building. Even harder is integrating rival manpower. To achieve all this in the midst of a lockdown and the financial and economic crisis that may follow would be a Herculean effort. However, the die has now been cast and the banks will have to effect a merger at least on paper, even though the real merger may take far longer.