BIG BANK MERGERS

•    BIG BANK MERGERS
NEWS PAPER ANALYSIS

THE HINDU AND ECONOMIC TIMES

•    BIG BANK MERGERS: GOVT TURNS TEN PSBS INTO FOUR ET
10 PUBLIC SECTOR BANKS TO BE MERGED ( THE HINDU)

1.       INDIA ANNOUCED AN EXTENSIVE CONSOLIDATION OF THE STATE OWNED BANKS THAT WILL SEE 10 OF THEM BEING MERGED TO FORM FOUR BIGGER LENDERS TO STRENGTHEN A SECTOR STRUGGLING WITH BAD LOANS CLEAN  AND AIMED AT CREATING LENDERS OF GLOBAL SCALE THAT CAN SUPPORT THE ECONOMY’S SUREGE OF 5 DOLLARE TRILLION BY 2024

2.       THE GOVERNMENT ALSO ANNOUCED GOVERNANCE REFORMS TO IMPROVE THE HEALTH

•    OBJECTIVE

•    FINANCE MINISTER NIRMALA SITHARAMAN :

1. CREATION OF NEXT GENERATION BANKS
2. BIG BANKS WITH ENHANCED CAPACITY
3. NEED BANKS STRONG NATIONAL PRESENCE AND GLOBAL REACH
4. THE LATEST CONSOLIDATION MOVE WILL SLASH THE NUMBER OF LENDERS TO 12 FROM 27 IN 2017

5.       HIGHLIGHTING BANKING REFORMS TAKEN BY THE GOVERNMENT THAT HAVE ALSO INCLUDED SIGNIFICANT TIDYING UP OF BALANCES SHEETS.

•    ANNOUNCEMENT ON BANK MERGER IS COHESIVE AND CLEAR RECOGNITION THAT BIGGER BANKS HAVE THAT MUCH MORE ABILITY TO ABSORB SHOCKS,REAP ECONOMIES OF SCALE AS WELL AS THE CAPACITY TO RAISE THE RESOURCES WITHOUT DEPENDING UNDULY ON THE EXCHEQUER.

•    AMONG THE GOVERNANCE CHANGES THE MOVE TO HAVE SEPARATE MECHANISM FOR SACTIONING AND MONITORING OF BIG LOANS WILL RING FENCE THE BANKS AGAINST POTENTIAL FRAUDS

•    THE DECISIONS TO EMPOWER BANK BOARDS AND OPERATIONAL FLEXIBILITY IN HIRING FROM THE MARKET WILL PRIORITZE THE ROBUST RISK MANAGEMENT PRACTICES IN DECISION MAKING.

•    IMPLICATIONS

•    WILL HAVE TOTAL OF 12 PUBLIC SECTOR BANKS HALF OF WHICH WILL BE ABLE TO COMPETE GOALS,

1.       PUNJAB NATIONAL BANK

2.       CANARA BANK

3.       UNION BANK OF INDIA

4.       INDIAN BANK

5.       SBI

6.       BANK OF BARODA

a)       BANK OF INDIA AND CENTRAL BANK WILL BOTH BE ABLE TO EXPAND THEIR NATIONAL PRESENCE

b)       INDIAN OVERSEAS,UCO BANK AND BANK OF MAHARASHTRA AND PUNJAB AND SIND BANK WILL BE ABLE TO STRENGTH THEIR REGIONAL FOCUS

c)        THE GOVT DID NOT GIVE ANY DATE BY WHICH THE MERGERS WILL BE COMPLETE

d)       A NUMBER OF SMALL REFORM TO THE BOARD OF BANKS AT AIMED THE IMPROVING THE EFFICIENCY AND ACCOUNTABILITY

e)       IN ORDER TO MAKE THE MGMT ACCOUNTABLE TO THE BOARDS OF THE BANKS

f)        A BOARD COMMITTEES WOULD BE MADE IN CHARGE OF APPRAISING THE PERFORMANCE OF OFFICERS OF THE RANK OF GENERAL MANAGERS AND ABOVE INCLUDING THE MANAGING DIRECTOR.

•     ET EDITORIAL:
INDIA NEEDS A FEW MORE BANKS

•    THE MERGER OF 10 PUBLIC SECTOR INTO 4 LARGER ONES DESERVE A QUALIFIED WELCOME

•    WITH GREATER SEGMENTATION OF CREDIT AND DIFFERENT KINDS OF BANKS CATERING TO DIFFERENT CUSTOMER CLASSES:

1.       SMALL FINANCE BANKS

2.       REGIONAL BANKS

3.       A HEALTHIER SET OF NON BANKING FINANCIAL COMPANIES

4.       FINTECH SERVING THE SMALL BORROWERS

•     ET EDITORIAL:
INDIA NEEDS A FEW MORE BANKS

1.       INDIA CAN DO WITH FEW MORE LARGE BANKS THAT CAN LEND TO LARGE BANKS THAT CAN LEND TO LARGE COMPANIES

2.       IN LINE WITH THE PLAN TO MAKE INDIA A 5 TRILLION ECONOMY

3.       SIGNIFICANT GOVERNANCE CHANGES

4.       BANKS WOULD BE BOARD RUN

5.       RUMENERATION STURCUTURE WOULD BE MARKET DRIVEN

6.       COULD REDUCE THE NUMBER OF LENDERS AND COULD IMPACT COMPETITION

7.       CLEARLY RBI NEEDS TO ACTIVATE ITS POLICY OF ON TAP LICENSING OF BANKS WITHOUT DILUTING FIT AND PROPER CONDITIONING FOR BANK SPONSOR

·         DRAW BACKS

1.       ONE MAJOR DRAW BACK OF THE REFORM SO FAR IS THAT REGUATION IS YET TO GUARD AGAINST MORAL HAZARD

2.       IF LARGE BANKS FEEL THEY ARE TOO LARGE TO FAIL,THEY COULD END UP TAKING ON MORE RISK THAN THEY COULD TAKING UP MORE RISK ON THE ASSUMPTION THAT GOVERNMENT WOULD BAIL THEM OUT.

3.       TO KEEP THE TAX PAYERS ,INSULATED FROM SUCH RISK THE LARGER BANKS NEED LARGER CAPITAL TO ABSORB POSSIBLE LOSS

4.       HOW TO RESOLVE A BANK, SHOULD IT BE MISMANGED TO GO BANKRUPT

5.       GUIDELINES FOR BOARDS TO STRUCTURE THE REMUNERATION OF SENIOR BANKERS