With reference to the report, "Two large PSU banks may merge, says Vinod Rai" (October 12), three points made by the Banks Board Bureau (BBB) chief deserve appreciation.
First, Rai's proposal for merger of public sector banks (PSB) only after the merger candidates have cleaned up their books.
Second, he does not believe in recapitalisation of PSBs at this stage when they are carrying huge bad loans on their back. The BBB chief does not favour the creation of more asset reconstruction companies (ARC) to offload the bad loans of PSBs.
Each of these points merits discussion. If merger is linked to clean-up, the whole exercise will take at least three years. How PSBs manage in the interim is a big question. They may have to be mandated that during the interim period, they will focus on retail lending, not big-ticket loans.
On recapitalisation, the government should take note of Rai's suggestion. He has be complimented for his frank views, as even the Reserve Bank of India during Raghuram Rajan's tenure as governor had not asked the government to go slow on recapitalisation.
Now that the proposal has come from a high-ranking, responsible authority, the government can shelve its plans of recapitalisation.
It is also a heads-up to PSBs that they should not demand recapitalisation at this stage. Recapitalisation in the past was only throwing good money after bad money.
Selling bad assets to ARCs was just a face-saving measure for PSBs. There were two negative issues in the entire process of such sales. First, the cash realised was minuscule - at 10 per cent of the negotiated value. Second, PSBs suffered due to huge discount on the transferred value.
K V Rao, Bengaluru
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