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.
