Panacea For Slowdown?

Catering to a sluggish economy, the government’s ambitious step to merge banks portends disruptions rather than much-needed improvments.

- B Sivaraman

Can merely merging 10 banks by dumping six financially tottering banks on four relatively viable ones make the four banks stronger or weaker? Though this is a matter of common sense and one need not have to be a financial expert to find the right answer, why is the government doing this and arguing that this move would create stronger banks?

If a government, strapped for cash due to financial crisis in a sluggish economy with revenues on a free fall, cannot afford to shell out money from the budget for recapitalization, can a shortcut of mergers be a viable long-term solution?

A section of the bank employees is also alleging that bank merger is a conspiracy to facilitate greater disinvestment and ultimate privatization of PSBs. In what way is this so?

The government is coming up with the brazen lie that it is merging the banks to meet Basel-III norms. But Basel norms are about ratios like cash reserve ratios, statutory reserve ratios and credit-deposit ratios and so on, and they are not about size. Then why is the government indulging in such misleading false propaganda?

That mergers would bring down the non-performing assets (NPAs) is another fraudulent excuse offered by the government. Increasing the size of the banks will not decrease the size of the NPAs. Is this rather a diversionary move to deflect public attention from the NPAs and for going slow on the recovery process against the corporates by bringing defaulters under Insolvency and Bankruptcy Code?

Can the disruptions caused by the mergers, especially due to software incompatibility between banks, be overcome by February 2020 as the officials claim?

The merger of banks and the creation of big banks is peddled as a panacea for the economic slowdown in the country. Will the merger and the associated disruptions help economic recovery or hamper it?