Pros & Cons of PSU’s Banks Merger.
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The Government has started mulling over the idea of Bank Consolidation. As Banks play a pivotal role in the circulation of money in the economy, any changes in their structure has effect on the market and the economy. A recent step in this direction has already been taken by SBI to merge all its associate bank (i.e., State Bank of Patiala, SB of Bikaner & Jaipur, etc).
Some prons are:
United we stand, divided we fall: When there are multiple players in the market they all fight for the same client base. Integrating some of them will increase their negotiating power, which means better capital and better lending facility.
Asset size: No bank in India stands in the World Top 10 list of banks. For a $2 trillion economy it is essential the banks must have a global footprint. Merger will increase the asset size.
Human Resource: On integration a cadre of professional bankers can be made which share same values and culture. The employees becomes more sharp and prudent.
Some cons are:
All is not good: Many big banks like, Bank of Baroda and PNB has reported poor performance. Merging of small & weak banks will only add to their woes and result in further erosion of their market share.
Penetration: Some regional rural banks have deep penetration in hinterland and doing tremendously well in furthering financial inclusion. Once they get merged with big banks, the priority to unbankable areas may wither away.
Opposition from Unions: Erosion of identity is the prime concern that Employee unions are flagging. They are unequivocal in their demand against meger and Govt. should get read to face stiff opposition from them in near future.
Some prons are:
United we stand, divided we fall: When there are multiple players in the market they all fight for the same client base. Integrating some of them will increase their negotiating power, which means better capital and better lending facility.
Asset size: No bank in India stands in the World Top 10 list of banks. For a $2 trillion economy it is essential the banks must have a global footprint. Merger will increase the asset size.
Human Resource: On integration a cadre of professional bankers can be made which share same values and culture. The employees becomes more sharp and prudent.
Some cons are:
All is not good: Many big banks like, Bank of Baroda and PNB has reported poor performance. Merging of small & weak banks will only add to their woes and result in further erosion of their market share.
Penetration: Some regional rural banks have deep penetration in hinterland and doing tremendously well in furthering financial inclusion. Once they get merged with big banks, the priority to unbankable areas may wither away.
Opposition from Unions: Erosion of identity is the prime concern that Employee unions are flagging. They are unequivocal in their demand against meger and Govt. should get read to face stiff opposition from them in near future.
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Pros of Banks merger:
• Mergers (either week one with bigger banks or merger of bigger banks) will help Indian banks to feature in the top banks in the world based on the asset size and profits.
• Helps to increase capital efficiency.
• Mergers will improve the portfolio of the banks thus reduces the risks.
• Higher credit rating.
• Reduces inefficient branches and helps customers to a great extent.
• Bank mergers will play a major role in the growth of the economy.
Cons of bank merger:
• Merging weak banks is risky and a complicated task.
• Requires care to take care of the sensitive issues (resources, priority sector lending, workforce and so on).
• Legacy issues.
• Redeployment of the workforce.
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