Making the grand Indian PSB merger work (Only merging won't work)

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 Making the grand Indian PSB merger work (Only merging won't work)

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• Enthusiasm and weariness : The markets reacted happily to news of PSB mergers, but slowly reality dawned. While expected efficiencies will take many years to come, the slowdown in loans will happen right now.
• A wrong approach : This merger decision shows a lack of thinking. 25 years ago, the Narasimham Committee mooted many banking reforms. It warned against merging weak banks, but the 2019 decision is precisely that!
• Gradual : PSB consolidation should've been gradually done, to create smaller number of well-capitalised and professionally-managed banks. But today, when PSBs are in trouble, a shotgun solution is proposed - ten merged into four.
• RBI PCA : Some of the weaker banks being merged now are under RBI's Prompt Corrective Action (PCA) framework already. The smooth manner of SBI merging its 5 subsidiaries in 2017 was because it was planned over many years, and the 5 associate banks were on same tech platform.
• Global or private : If we are expecting the merged banks to mirror global banks' efficiencies, it is impractical. We must target local private banks as benchmarks. Goal should be to reverse the decline in ROE of PSBs (return on equity).
• Six measures to take :

1. Ensure no leadership vacuum in anchor banks. Extend the tenure of present leaders.
2. Get professionals from the market for technology, HR, risk management etc., at market-linked salaries.
3. Recruit best front-line staff. Rationalisation of staff cannot be allowed to mean end of fresh hiring.
4. Don't allow slowdown in bank credit due to these mergers. Instead of "loan melas", tap the NBFCs to give better credit flows.
5. Make seamless ownership structures for the other businesses (insurance, asset mgmt.) of the merging PSBs.
6. Convert remaining weaker PSBs (outside merger) into regional banks. Example - Bank of Maharashtra etc.

• All about execution : The govt. must get it right now else there could be losses, not gains.
• Summary : The PSB mergers are likely to be challenging, unless executed with a comprehensive action plan, and taken to their logical conclusion.

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