Page 12 - 15OCT2018E

BANKING

Banking on reforms may 11.04 per cent. The combined entity will due consultation and value addition. before proclaiming it as a universal

solution. The net profit of SBI has
Therefore, there is little wonder that
have a net NPA ratio of 5.7 per cent.
the markets have reacted negatively to
dropped alarmingly after it was forced
give sector more strength Good on paper the decision. to absorb five of its associate banks
On paper it seems a brilliant proposal
The approach of the government
besides the Bharatiya Mahila Bank.
Similarly, the takeover of the ailing IDBI
but will it work? Will it give Dena Bank has been to tuck a weak Dena Bank
some oxygen to survive? Or it will
with a relatively strong Bank of Baroda by LIC cannot be termed as a sound
to deal with NPAs sink even the healthy banks after the and offer a lollipop of Vijaya Bank as a business decision.
merge? We all know that the Dena got sweetener. At the end of it we have a
There is nothing wrong in mergers
into trouble because of indiscriminate
and acquisitions (M&A) per se but these
relatively weaker structure. The Bank
lending. It seems that the strategy is
capital position. It has just finished a
considerations and must not be politi-
to ask healthy banks to take over weak of Baroda has had a very comfortable should happen purely on commercial
banks to handle the bad loans crisis. process of clean up of all known NPAs. cally imposed. While PSBs are promot-
The merger of Dena Bank, Bank of Baroda and Vijaya Bank will make the new entity the third The merger is part of the government’s Vijaya Bank is one of the very few banks ed by the government, they are run by
largest lender of the country after State Bank of India and HDFC Bank, reports SUMAN efforts to consolidate the banking in- that continued to turn in profits when their respective professional boards,
which alone should take such decisions.
bank after public sector bank hit the
dustry with an eye on overcoming the
bad loan crisis. After the announce- red.
ment of the merger, shares of healthy Future of banking reforms
he Dena Bank, one of the move, the government has effortlessly among the three with total business of banks the Bank of Baroda and Vijay And now we hear that the Bank of
worst performing PSBs, shifted Dena Bank’s liabilities to two 10.3 lakh crore, is more than five times Bank tanked at the stock exchanges, The current merger Baroda and Vijay Bank’s merger with
had been forbidden by the healthier banks, the Bank of Baroda the size of Dena Bank — the weakest while Dena Bank gained sharply to hit comes after the Dena Bank could set the stage for fur-
Reserve Bank of India from and Vijaya Bank. The reasoning given of the three with business of 1.73 lakh upper circuit. ther consolidations and mergers. All
T extending new credits under is simple that the two strong banks will crore. Vijaya Bank, also smaller with If the shareholders of Bank of Baro- government let eyes will be on the proposed amal -
its stringent prompt corrective action absorb a weak bank and create India’s business of 2.8 lakh crore, is, however, da, whose share fell by 16 per cent on gamation to see how successfully the
(PCA). But it has now hopes for a revival third largest bank with much greater a relatively healthy bank. Bank of Baro- news of merger, feel unhappy, that is State Bank of India’s combination works.
and a fresh lease of life by the recent lending power. da’s net NPA ratio is 5.4 per cent, Vijaya understandable and not surprising at associate banks The bank officials expect the merger
three-bank merger. With this deft The Bank of Baroda, the largest Bank’s is 4.1 per cent and Dena Bank’s is all. Dena Bank is the worst financial to be completed in 4-6 months time,
institution among the three entities and merge with their while banking industry veterans expect
is currently under the Reserve Bank of parent last year and it would take at least one year to com-
India’s prompt corrective action frame- plete the amalgamation. Investors and
work. Unlike the other two banks, its the LIC of India take bankers say that success of this exer-
shareholders are set to gain from over the troubled cise, is crucial for future such attempts.
being part of a new bank with greater Improvement in operational efficiency
financial strength and financial muscle. IDBI Bank this year is one positive that could emerge from
The current merger, it is worth noting, the merger that is set to create the
comes after the government let State country’s third-largest lender.
Bank of India’s associate banks merge On positive side The cost of funds for the merged
with their parent last year and the Life On positive side, the Vijaya Bank has 52 entity is expected to come down since
Insurance Corporation of India take per cent of its branches in the southern Vijaya Bank has a high dependence
over the troubled IDBI Bank this year. region while Bank of Baroda has only on short-term bulk deposits, which
10 per cent of its branches in South, are typically high cost in nature.
Weaker entity thereby giving the amalgamated entity Ultimately, how well the three banks
Forced mergers end up creating an a better footprint. But what about Dena combine could well end up determin-
entity that is weaker than the origi - Bank which has many branches in ing the future of consolidation among
nal pre-merger strong banks. There is Gujarat, where Bank of Baroda already public sector banks. And it will open up
no denying the fact that there are too has a very significant presence. Dena more proposals coming up for merg-
many public sector banks in India and Bank also adds three years of losses, a ers and acquisitions in public sector
consolidation is a good idea on paper. business that is not growing, and a clut- banks, financial institutions and other
However, the merger sends out rather ter of branches in areas where Bank of public sector enterprises which are
poor signals. Baroda is already present. loaded with surplus manpower, indis-
We need to examine the current In its hurry to contain the rising criminate lending and brazen decisions
announcement of the government to non-performing assets (NPAs), the gov- sometime because political whims and
merge Bank of Baroda, Vijaya Bank ernment should not commit another fancies.
and Dena Bank in a continuing con- blunder. It should professionally evalu-
text of taking ad-hoc decisions without ate the State Bank of India experiment LETTERS@TEHELKA.COM

TEHELKA / 15 OCTOBER 2018 13 WWW.TEHELKA.COM

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