Mergers no quick fix for public sector banks; they need autonomy, says ASSOCHAM Paper

Asserting there are no quick fixes for grave problems facing the public sector banks, mainly centered around close to Rs. five lakh crore non-performing assets, ASSOCHAM President Sunil Kanoria today said a paper brought out by the chamber clearly suggests mergers or consolidation of the PSBs is certainly no answer to the present crisis, which can only be resolved by professionalizing these banks with the government keeping an arm's length.

Addressing the media, Kanoria said, "Our paper has also noted that as things stand today, the boards of the PSBs are not empowered enough to choose a glide path for their banks. Instead, they need to refer to the Finance Ministry circulars even for mundane things."

 

Releasing a study titled 'Convergence, Not Consolidation Answer for Public Sector Banks,' along with chamber's Secretary General, D S Rawat at a press conference held in New Delhi said, "If size of the banks had a relationship with the health of the financial sector, the Chinese banks would have been the healthiest lot. But, the biggest concern before the global financial community today is the health of the Chinese banks."

Of the top ten global banks on the S & P Global Market Ranking, the first four are from China with Industrial and Commercial Bank of China right at the top. Only two American banks - JP Morgan and Bank of America, figure on the table of top ten and the Wall Street has no liking either for the size and seems quite disillusioned with the so-called 'Too Big to Fail' concept whereupon it is on the sovereigns to save their banks even if they go reckless in their business.

"But then, somehow, here in India we have got this penchant for large size to be achieved by merging different entities", said Kanoria.

If at all, there is a case for a merger, it is weak bank merging into strong one; but here we have a situation where there are hardly strong banks in terms of crucial parameters, large book size notwithstanding.

With some high profile borrowers getting into litigation and facing criminal probes, the public discourse puts additional pressure on the government, to find some quick fixes for NPA-ridden banks, which find themselves terribly constrained to improve lending with the credit growth well below 10 percent.

More than the size of the bank, what matters is the composition and the empowerment of the bank board's which need to include professionals without operational interference from the government, said ASSOCHAM President.

Unlike the present situation where the Financial Services Division in the Finance Ministry is virtually the master of the PSBs, the level of the government interface with the banks should be well-defined and be done only through the Banks Board Bureau (BBB), comprising people of eminence, integrity and domain expertise.