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This article is more than 3 year old.

Consolidation of banks would make them commercially successful, says principal economic advisor Sanjeev Sanyal

Consolidation of banks would make them commercially successful, says principal economic advisor Sanjeev Sanyal
There are too many scattered public sector banks and consolidation would make them commercially successful, said Sanjeev Sanyal, principal economic advisor.
"The issue of consolidation has been discussed for quite some time and we wanted to do this for a while and on that basis, we have decided to merge a group of banks to create a somewhat bigger entity which will be more successful commercially," Sanyal said.
The government on Monday proposed the merger of the three state-owned banks to create the country’s third largest lender as part of efforts to revive credit and economic growth.
The centre is not trying to resolve the non-performing asset (NPA) problems or prompt corrective action list (PCA) issues through the merger, Sanyal told CNBC-TV18.
Edited Excerpts:
On what basis were these three banks chosen for amalgamation?
I think the issue of consolidation has been discussed for quite some time and we wanted to do this for a while. People agree that there are too many scattered public sector banks and in the long run, consolidating banks would probably make them more commercially viable. So, on that basis, we have decided to merge a group of them to create a somewhat bigger entity which will be hopefully more successful commercially.
The most important thing to understand out of this is that it has been done on a commercial judgement. This is not an attempt, by the way, to suddenly wish away the NPA problem which many people think. This is a commercial judgement which in the medium term will hopefully lead to more viable banks.
This is something we have been trying to do for quite some time and I am sure Rajeev Kumar, secretary, department of financial services (DFS) will be able to give you the exact details of how the numbers stack up, but this is basically why it has been done.
DFS secretary, in his press conference, said some numbers of the three banks. But what I am trying to get at is the factors that you all considered? Was it regional presence or duplication, was it technology platform? I mean if you know the algorithm, for this consolidation then we can figure out the next merger candidates, that is my point?
I am not telling you what the next consolidation is going to be. We will go about this quite carefully. We are not doing a binge merging exercise. This will be done carefully one at a time. You have already seen what we did with the State Bank of India (SBI) and its merged subsidiaries. Now, this has happened, every time it is done carefully and slowly. So, we will take our time to stabilise this one and then we will move on to the next one.
Can we expect at least one more merger, consolidation, amalgamation this fiscal?
I am not in a position to comment on that.
My point is there are 10 banks in the prompt corrective action list (PCA) of the Reserve Bank of India (RBI) even after you exclude Dena Bank. That is why this question?
The key thing I am trying to make is that we are not trying to resolve the NPA issue or the PCA problem by doing this. This is a medium to long-term view of consolidation which has been by the way discussed for a long time.
This is not like we came out of nowhere and did it. So, it is not the case that we will suddenly go around trying to use this to resolve those issues. So, this is not the case at all. Therefore, we will go about this deliberately and slowly.
But why amalgamation? Doesn’t this route sacrifice minority shareholder interest? Why not the open offer route?
Various options are there, a judgment was taken that this would be the most convenient way of doing it. There are I am sure other ways of doing it as well.
I am asking because I want to know whether the rights of minority shareholders will be a consideration at all in the next set of mergers.
As I said, there is pros and cons for everything. So a judgment was taken that this was the most convenient way of doing it. I am not saying that some other way will not be used in another case in the future. That is always open.
You kept saying that the banks were chosen carefully, ‘were chosen’, it was a government dictate, that is how it looks from your answer. In the earlier references to consolidation by the government, we were told the boards of the banks will chat and consult. That was the impression we got in the Gyan Sangam. Now it looks like a dictate.
No, that is your interpretation. I can assure you a lot of discussions happened on all sides before such a major decision was taken.
One of the top officials of one of the banks told us he learnt about the consolidation of his bank from the press conference.
Top managers were consulted. So, this is not quite the case, maybe there are some individuals who may not have been aware, but an adequate number of officials on all parties were consulted.
You say, what will national interest here has prevailed over minority shareholder interest. Don’t you worry that this attitude will scare away minority shareholders from PSUs in general?
I do not believe so. I don’t think minority shareholders are going to get somehow being done over by this. A fair amount of thought was put in to doing this. It is not like we did it all of a sudden. A lot of thought has gone into this consolidation. It has been discussed for a long time, so this has been almost a year since the last set we did with SBI.
A lot of time and energy has gone into doing it before being attempted, and that is why I keep making the point to you is that we will do it. We will see what happens out of it and if and when something like this is done, the lessons will be then implemented.
Even in this, the process has just begun, it has just been announced. So along the way, many things will be also done.
Of course, we want our minority shareholders to benefit from this. So, various tradeoffs have to be made at every stage. Every other way of doing it would have had some other downside. So, tradeoffs are made and, of course, we do want all shareholders, minority and majority, to benefit from this.
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