In India, there are currently 21 public sector banks after the merger of SBI with its 5 associate banks and the merger of Vijaya bank and Dena bank into Bank of Baroda. Government is also in a plan to merge Indian bank and Corporation bank into Oriental bank of commerce. Indian bank saw a net loss of Rs.190 crores for the fourth quarter FY 2019, against a net profit of Rs.132 crore in the same period last year. So, what is the reason behind the continuous mergers of banks? Indian banks don’t even hold a position in the top 50 banks around the world in terms of asset size in spite of being one of the largest economies and one among the prominent wealthiest countries. There are around 80-90 banks including the foreign banks which run their operations in India, among which the public sector bank is the largest. From the term public sector banks we can understand that the majority of the stake would be held by the government and all these functions are controlled and regulated by the government directly. So, what actually differs between all these government banks?? The charges, services, quality, the time duration for the service provided and perception too. Though the market share for the public sector banks is higher than compared to the existing private players within the country we don’t hold a position in the top 50 banks in the world. How people evaluate and choose different government banks before opening an account and deposit the money would be a question. Some prefer to trust the name of the bank and deposit the amount, while some see the details about which bank would be giving the higher interest rate to save their hard earned income for the future.
Coming to the point, India is one of the largest economies, having the second largest population and the sixth largest country in terms of wealth, is still unable to secure a position in World’s Top 50 banks when compared to asset size. The reason is when people want to open an account and deposit money in a bank since the numbers of public sector banks are more, people have a wide variety of choices and the funds from the people get attracted to government banks. Some government banks may perform well as they get more funds from the public and make inroads for the future and become strong whereas few banks may not. Though with the same funds’ banks are going to generate the revenue by giving loans to the corporates they must have the capacity to sustain if any of the corporate defaults to pay back the money. So whenever banks issue loans to the companies there are situations where they could not pay back the loan amount and enter into the default list. There would be many reasons why a company may be defaulted but just assume that their business has been facing losses and could not pay back the loan amount and the NPA of the bank rises gradually. The NPA of Dena bank before getting merged as on March 2019 is 22-23% which is the one among the highest among the state-run lenders.
So, for the question with the bank merger does it have any impact and what are the benefits if the banks are getting merged ??
The main objective is to have fewer but healthier lenders. As of April 1, 2019, the three banks namely Bank of Baroda, Dena Bank, and Vijaya bank have been merged under the name of Bank of Baroda. The government assured that not even a single employee would be losing his job and operations would be continued as usual, but the depositors of Vijaya and Dena bank would be coming under Bank of Baroda and BOB issuing and allotting equity shares to the shareholders of Vijaya bank and Dena bank. Such a move comes from the side of the government in order to strengthen the banking system of India and thus give it a stand among the top banks in the world. To understand a bit clearly let’s take the example of Bank of Baroda which is the stronger bank and Dena Bank (whose NPA’s were the all-time highest, 22%). Say bank of Baroda has a capital of 10,000 crores and Dena bank has a capital of 1,000 crores. A loan of 1,000 crores is issued by BOB and 100 crores of loans issued by Dena bank to the two different corporates. Say both the corporates who took the loan from the banks could not pay back the amount. Here the amount of capital of BOB is stronger than compared to Dena bank. It is when the depositors ask the money back hence BOB is stronger it could manage the funds but Dena bank couldn’t as the capital and turnover of the bank is less and with this, the NPA’s of bank increases gradually and this burden would fall on the customers but not on the bank. So the process of consolidation of banks in the country is to make the lenders (i.e. the banks) stronger and power within and outside the country by giving a global competitive identity. With this, we can compete with the private players within the country as well as the banks outside the country. And if any of the borrowers default on repayment of debt it should not create panic among the depositors and shareholders.
This merger will make these three banks switch from ‘Competition’ to Co-operation as they are now under one roof of Bank of Baroda and will work towards the achievement of one goal and objective. Apart from the co-operation, the reach to the people increases i.e. the customer base increases and BOB has a lower lending rate which will benefit the other two entities to boost their customer portfolio. And compared to Vijaya and Dena Bank, Bank of Baroda also has 50 overseas branches outside India which now helps the customers of other two banks with a wider reach, whereas SBI stands 1st with 52 overseas branches.
Bank space has changed as compared to 1990s to 2000s. Earlier if people wanted money they would not have many options, the only option would be to borrow from a person or from a bank by paying the interest that to in rare scenarios. But at present there are many apps which came into existence by giving the loan within minutes and with a low interest rate, so here the people who are in need of money who used to go to bank earlier have been turning towards the apps as it would be quiet convenient for them while paying back by being at one place. So the transformation of people preferring digital mode over traditional mode of banking is happening.
Payment banks which came into existence widely after demonetization help the customers by allowing them to transact without even visiting the bank/ATM. Few of the payment banks are Paytm, Airtel, NSDL payments bank which made the people add or transfer the amount directly from their account. Recently Aditya Birla group in a joint venture with Idea Cellular has received the license from RBI to set up 51:49 ratio joint ventures to launch payment bank services in the country.
And with this, however, to achieve economies of scale, the branches which are overlapping would be removed and everything would be under one roof as Bank of Baroda which improves the operational efficiency and bring down the costs. To strengthen the merger the balance sheet and meet the credit needs of its customers, the government has infused Rs.5,042 crores into Bank of Baroda by way of preferential allotment of equity shares. The merger which has happened would focus more on profitability.
With a total business of about Rs.15 trillion, post-merger Bank of Baroda is now the 3rd largest lender in the country after SBI and HDFC bank by pushing Punjab national bank to 4th position. With the merger of SBI with its other 5 associate banks the bank stands in 58th place all over the world with total assets of 3,680,914.25 crores as of March-2019. And in terms of presence in overseas SBI has the largest number with 52 branches and the next is Bank of Baroda with 50 branches.
Conclusion:
A person cannot hold three things when he is given only two hands. In other words, handling more than what’s your capacity will only result in a mess as the Indian government. With the aim of overall development, Government’s move of nationalizing a number of banks seems to be backfiring now. Rising NPA represents the inability of the government to manage such a number of banks. Corrective action is needed in order to reverse such act of mistake. The merger of associates of SBI into itself and two banks viz. Dena and Vijaya into BOB come as a result of such corrective action. A hope arises now that Indian Banks will develop and will improve its standing among the Top banks of the world.
IBS Times official Media partner: Newswire
IBS Times official Promotional partner: IBS Messenger
Комментарии