A relook on Banks Consolidation

What is the issue?

• SBI recently merged its five associate banks and Bharatiya Mahila Bank (BMB) with itself.
• The release of first quarterly performance of the merged entity calls for a rethink on the government's consolidation strategy.

What is the impact?

• The consolidation has weakened the original standalone entity of the SBI in terms of NPAs.
• The merger took a heavy toll on the bank’s recovery.
• The deterioration in asset quality was essentially because of the merger.
• SBI's lending growth has slowed down.

Is consolidation the right choice?

• In SBI’s case the conflicts and disparities of work culture might have been fewer.
• But in case of an increased geographical reach for a merged entity in  future, bridging the work culture gap at operational level would be challenging.
• The problems faced by Indian public sector banks run deeper, and mergers cannot provide a quick fix.
• The solution requires better recapitalisation as well as governance reforms so that the banks' shortcomings are sorted out.

Source: Business Standard