Sir,
At least one of the reasons cited by Finance Minister Nirmala Sitharaman while announcing the merger of public sector banks is untenable.
In what is considered as the second wave of the Government’s efforts to revive the economy, Sitharaman announced a series of banking reforms, including merger of 10 public sector banks into four entities. These merged banks would lead to the creation of big banks with an enhanced capacity to give credit and would also be able to compete globally, she claimed.
But Indian banks competing in the global market is merely a pipe dream. In the first place, there is no need for them to compete in the global marketplace. More importantly, even the biggest Indian bank, State Bank of India, is nowhere near where it can be in the same league as JP Morgan Chase, Bank of America, Citi or even HSBC. A global Indian bank, as of now, is a misnomer, although a people, large enough as one-sixth of the world’s population, certainly deserve one.
The Minister further claims that the merger will enhance the capacity of the banks concerned to increase credit disbursals. That presumption also needs to be proved, at least in the case of retail credit. It is often not the lack of capacity that deters banks from lending to retail credit seekers, but a skewed policy that always works in favour of the big-ticket borrowers.
There is no doubt that the first step to revive the economy, which is now in dire straits, is through raising demand at all levels, including retail. Lack of demand is not only slowing down the economy, but also affecting the investment outlook, as testified by Reserve Bank Governor Shaktikanta Das at the meeting of the Monetary Policy Committee in the early part of August. From provision shopping to big-ticket spending, such as purchase of vehicles, customers simply do not have the money to buy.
Banks, by way of name lending as their best credit strategy, have burnt their fingers by amassing toxic assets, mostly on account of lending to projects and people of questionable credentials. In a knee-jerk reaction, they have suddenly applied the squeeze, crowding out ordinary borrowers from the credit market.
K Raveendran
on e-mail
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