The consolidation of state owned banks by Government of India is an ambitious reform and its success depends on various factors. Comment (200 Words)
Refer - The Indian Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· Almost three decades after the M Narasimham Committee first recommended a redrawing of India’s banking landscape, announced a big and bold step to consolidate state-owned banks.
· According to the mega merger plan unveiled by the finance minister Oriental Bank of Commerce and United Bank of India will be merged with Punjab National Bank, making it the second largest bank in the country.
· While the south-based Canara Bank and Syndicate Bank will become one entity which will make it the third largest local lender, besides an amalgamation of Andhra Bank and Corporation Bank with Union Bank of India and Allahabad Bank with Indian Bank.
· This comes on top of the merger of associate banks of the SBI with the parent bank, and that of Vijaya Bank and Dena Bank with Bank of Baroda, thus pruning the number of government banks to a dozen.
Advantages
· A consolidation offers the promise of economies of scale, leveraging of pooled resources, manpower, brands, better utilisation of branch networks and increased efficiencies.
· Supplementing these will be the government’s decision to infuse capital separately into many of these banks and game-changing reforms such as the insolvency law and the asset quality review of lenders.
· In the near term, this will certainly benefit the largest shareholder, the government, more, with fewer banks to focus on and to assign capital.
Risks involved
· The biggest potential risk in such a consolidation blueprint is the swelling of more systematically important or too-big-to-fail entities and the systemic challenges they pose as the IL&FS blow-out showed.
· Manpower rationalisation and cultural fit will also be issues. Overcoming political resistance, and that of bank unions, may also not be easy. The process of integration will be difficult, consuming a lot of political and managerial energies.
· The success of this ambitious plan to shrink the number of banks in India will hinge on a much stronger and more independent central bank with an enhanced capability to supervise these banks and ensure financial stability.
· It will also mean further bolstering the RBI’s capital buffers. The government’s move comes at the right time, with the NPA or bad loans problem appearing to have bottomed out.
· But India’s banking reforms will be complete only when the next set of governance reforms show in board driven and professionally run banks, which are free to operate without policy constraints or hounding by probe agencies and when the government reduces its equity.
Neha sharma 5 years
Please review
IAS Parliament 5 years
Avoid listing out points. Try to include about Indhradhanush mission, Bank board bureau etc. Keep Writing.
Santosh kulkarni 5 years
Kindly review. Thanks.
IAS Parliament 5 years
Good attempt. Keep Writing.
K. V. A 5 years
Pls review
IAS Parliament 5 years
Benefits not needed. Try to add more content like Indhradhanush mission, Bank board bureau etc. Keep Writing.
Neha 5 years
Please review!
IAS Parliament 5 years
. Try to avoid listing out points.Try to add more content like Indhradhanush mission, Bank board bureau etc. Keep Writing.
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