Showing posts with label consolidation of banks. Show all posts
Showing posts with label consolidation of banks. Show all posts

Saturday, July 29, 2017

'For Whom the Bell Tolls?' Bank Mergers

Consolidation, Convergence and Competition of Banks in India

Cooperative Banking suffering weak governance, poor legal framework, dual regulation, and excessive politicisation is in search of sustainable solutions and the consolidation move in the three states rightly highlighted by Bloomberg in its article a few days ago is perhaps the right move. Following the recommendations of Vyas Committee (2005) NABARD amalgamated the 196 RRBs established under the Multi-Agency approach to rural lending in the country during a fifteen year period till 1990 into 64 by 2013. This amalgamation has only partial success as the RRBs are still distant from the objectives of their creation in 1975.
1991-2001 saw bank disintermediation in the wake of financial liberalisation, prudential norms and profitability focus. Directed credit program was blamed for the rising NPAs till then. I recall Dr.Y.V.Reddy mentioning in his latest book ‘Advice and Dissent’: “the seeds for bad times are always sown in good times.” 2003 was the year of ‘crazy credit’ that took the route of CDRs in 2010 and 2011. This grew into a immature NPA adult and aged along to reach the unsustainable level of around Rs.8trillion. Courtesy this situation, lazy banking had set in.

Thursday, March 10, 2016

Consolidation of Banks is no cure to the Ills

James Crabtree of the FT reporting on the predicament of the then PM Singh commented in March 2012 that Indian Banking was at the brink and needed heavy capital infusion to catch up with Basel III requirements and clean up to measure up to the requirements of economic growth to revive to beyond 7%.

The position worsened ever since. Gyan Sangam (Intellectual Confluence), the second after the formation of the present government that discussed the revamp of the banks a couple of days back at Gurgaon, Delhi have not offered any better wisdom than loud whispers of consolidation of banks. Is consolidation of banks the right solution?