October , 2018
Doubts over usefulness of bank mergers
15:11 pm

Kishore Kumar Biswas


Another step for bank amalgamation has been on the fore. The finance ministry of India is going to amalgamate three PSU banks, Bank of Baroda, Vijaya Bank and Dena Bank. After merger the new bank will be the country’s third largest bank. What is the reason behind the merger? The big banks may have economies of scale, lower cost of operation, rationalization of branches. But these are not at all the problems that the Indian banking system is facing. The most of the PSU banks are earning positive operating profits. But when these go for provisioning of bad loan the net profit enter the negative zone, that is, loss. Therefore, how can one be sure about profitability after amalgamation?

Any megalomania about banking structure?

After the Lehman’s collapse the idea of ‘too big to fail’ in the banking has taken hold. At the time of the global financial crisis quite a number of very big banks faced the fear of subsistence. From the recent experience that shows bank crisis is independent of size. Therefore merging banks to form bigger banks may not work. Even the recent instances of the SBI mergers, the balance sheet of the present merged SBI has not only been not improved but also deteriorated. Rajen Nagar, president, All India Bank Employees’ Association pointed out this point and told BE that before mergers the erstwhile associated banks Rs. 65,000 crore and SBI had Rs. 1,12,000 crore NPA, that is,  Rs. 1,77,000 in total. But after merger the total NPA has increased to Rs. 2, 25,000 crore. For the first time in its history, SBI has been suffering loss. Then what will happen by creating bigger banks asked Nagar.

After merger a section of employees suffer different humiliations and face several problems. a section has to leave their job due to their personal compulsion and familial problems. Merged banks offer VRS to their employees, new recruitment is virtually stopped. If the present amalgamation comes true what will happen to the employees of these banks, particularly, in the states like Gujarat and Maharashtra where exposure of the banks is high, asked Nagar. These are some of the important social problems that Nagar pointed out.

The analysts reportedly said after the government’s declaration of the plan for recent merger, that banking has been an ongoing process. Its success depends, mainly, on the proper repayment of loans. This would depend on many factors including macroeconomic and political situation of the country. The size of the bank or balance is remotely related to successful banking of an economy.


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