Permanent solution

The editorial, “Consolidation fiasco” (August 17), about the worrying Q1 results of India’s largest public sector bank, State Bank of India, is a true reflection of the outcome of consolidation effort manifested so far. But SBI and the banking industry are aware that ills in the system cannot disappear on their own.

Consolidation of entities would be an arithmetical sum of deficiencies. It is a long-drawn-out process to derive the synergy of consolidation and can never manifest in the near term. SBI has already begun the painful process of post-consolidation action. Redeployment of manpower, closure of multiple branches in the same area and merging of administrative units are some of the follow-up measures to infuse efficiency. But they cannot add to the gain so soon. 
 

The problem of accumulated toxic loans remains unresolved. A tumour of such toxicity has to be surgically removed for a permanent solution, else one would have to live with it. The jump in non-performing assets (NPA) is a foregone conclusion; the problem can’t be addressed simply by bringing banks together. Either the government should infuse adequate funds to absorb the haircut or hive off the portfolio into a separate entity. Consolidation of banks can be a solution to enhance operational efficiency in the long run, not a panacea to ward off NPA stock. Considering consolidation as a strategy is not meant to wipe ills off the bad loan pile. It is not a fiasco per se. It can only serve the purpose for which it is meant. It is not possible to expect solutions that do not exist in the prescription.

K Srinivasa Rao, Noida

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