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July 25, 2018

Essays for SBI PO Main Exam 2018 : Banking Reforms - Merger of Public Sector Banks

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Banking Reforms - Merger of Public Sector Banks

While India claims to have escaped the global financial crisis, Public Sector Banks are in a mess today because they were big lenders to many mega-scamsters and shaky infrastructure projects (telecom, coal, power, realty and SEZ).

Banking industry has seen a number of changes over the last five decades. The major changes been the Nationalisation of the banks in 1969 and 1980, followed by the liberalisation of the economy in 1991, opening up of Banking sector for Private sector in 1993 and the latest one being the emergence of Payment Banks and Small Finance banks in 2015. 

Despite the changes witnessed over the years, there still exist a number of challenges which need to be addressed, .one such challenge being the NPA. In the quarter ending December 2015, nearly 11
Public Sector banks reported loss, which even includes big names like, Bank of Baroda, IDBI Bank, Bank of India and Indian Overseas Bank. The Net Non-Performing Assets (NPA), in the banking sector, have crossed Z4.3 lakh crore during the quarter-ended 31st December, 2015.

Case of SBI

  • SBI had five associate banks, namely; State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Patiala, State Bank of Travancore, besides State Bank of Mysore.
  • From banking facility point of view, SBI is the more technically advanced compared to its associate banks. It takes 2-3 years to adopt the same technology for the associate banks that SBI is using now. 
  • Another thing is that it is not going to impact customers. Customers will be getting better facilities or world class facilities. 
  • Some associate banks which are under staffed will get exponential benefit out of it.
  • It will also help in financial inclusion. As now banks would be able to open more branches at the rural places, it will help people to get banking facilities easily as all associate banks will be on the same level and providing the same facilities.
  • Merging 27 banks not just SBI and associates into 4-5 big banks will boost the banking sector. May help in reducing the bad loans as well. 
  • Note : On 15 February 2017, the Union Cabinet approved the merger of five associate banks with SBI.

Advantages of Merger 

  • It is expected to improve the efficiency and service delivery of Public Sector Banks. 
  • The sharing of infrastructure will give customers a wider use of the ATM network. 
  • The charges on cross-bank ATM usage would reduce considerably. 
  • Customers of smaller banks will get access to wider use of financial instruments like mutual funds and insurance products, as offered by Big Banks. 
  • Large banks would have a wider capital base enabling them to offer big ticket loans on their own without being part of a consortium.

Disadvantages of Merger

  • Smaller banks will tend to lose local characteristics, which customers preferred because of cultural affinity.
  • A few large inter-linked banks expose the broader economy to greater financial risks.
  • Human resource issues can be difficult to handle; career growth of senior management and other workers could become problematic. 
However, the government will set-up an expert panel for the consolidation process and the earlier established Bank Board Bureau will also help in the consolidation process. It is speculated that the merger between the banks will be based on geographical and technological synergies, human resources and business profile, among others.
shared by Nisheeta Mirchandani
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