With reference to “Why merge public sector banks?” by Subir Roy (October 19), the merger of the state-owned banks is not the panacea to mounting bad assets. The rising cost of credit, the non realisation of the accumulated unrealised interest and the dismal business performance of the public sector banks (PSBs) need positive speedy corrections.
Despite the ongoing economic reforms, cash generation in specific sectors — infrastructure, power, telecommunications, and iron and steel — are not rising sufficiently to service the debts owing to the banking sector. At this juncture it will be pragmatic to look for more aggressive measures to resolve issues which are adversely affecting the soundness of the banks.
Each of the small and large state-owned banks have their own strategy and ways to deliver better results without compromising their commitments to social banking. These banks have their own legacy and work culture. While it is true that the merger will lead to consolidation, the merged entities would still be facing critical issues. As such, the merged entity will not be able to deliver better results immediately, due to the elevated level of the bad assets.
For the time being, the government and the banking regulator should not look at mergers, but should initiate speedy execution of the reforms. Stringent actions need to be taken against the defaulters to drastically improve the recovery of the unrealised interest, bad assets and the written off loans. If this materialises significantly, it will enable PSBs to regain its lost health which is the urgent need of the hour.
V S K Pillai, Kottayam
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