Letter to BS: Merger is not panacea to remove all economic ills of the PSBs

Faced with a mounting non-performing loans owing to a variety of reasons and resulting in depleting profitability, the health of the public sector banks (PSBs) have indeed been a matter of concern. They control about 70 per cent of the assets in the banking system and are the backbone of Indian economy and hence, it is necessary to restore their health soon. There are now talks about the mergers in the public sector banking space. Merger is not the panacea to remove all the economic ills of the PSBs. It will hold well as long as there are synergy and economies of scale. Consolidation of the weak banks is not going to serve any purpose. Even the merger of weak entity with a strong one has to be such that the merged entity is able to absorb the shock within a reasonable period of time and is able to capitalise on the new strength and reap the benefits in the medium to long term. It cannot be denied that some external factors are also responsible for affecting the business and decision-making process of PSBs. In the final analysis, granting greater functional autonomy to PSBs to take commercially viable decisions in an independent manner is key.

Srinivasan Umashankar  Nagpur
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