oppn parties Big Banks Will Need To Be Leaner And Better Governed
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January 29, 2023

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  • RBI governor Shaktikanta Das says that inflation is easing and the current account deficit is manageable
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  • Stocks bleed on Friday post the Hindenburg report as Adani stocks are hammered: Sensex loses 874 points to 59330 and Nifty 287 points to 17604
  • Rs 263cr TDS scam detected by the I-T department. A mid-level officer was the kingpin and had amassed huge wealth
  • Women's U-19 World Cup -India reaches the final by beating New Zealand by 8 wickets
  • New Zealand beat India by 21 runs in the first T20 as spinners choke Indian batters
  • Sania Mirza and Rohan Bopanna lose in the Australian Open finals
  • Sania Mirza and Rohan Bopanna lose in the final of the Australian Open
  • India to play New Zealand in the first T20 of the three-match series in Ranchi today
  • RBI has proposed special purpose vehicles (SPEs) mechanism to sell bad loans to interested investors via securitization
  • JD(U) decides not to attend the Bharat Jodo Yatra finale in Srinagar
  • Hindenburg defends its report on the Adani group, dares Gautam Adani to sue it in the US
  • BJP's talks with Tipra Motha in Tripura make no headway but the party is confident of winning in the ensuing elections
  • Pathan is a super hit at the box office: Rs 57cr in India (worldwide Rs 106cr) on Day 1 and then Rs 70cr on Day 2 which was Republic Day holiday
  • Centre tells Delhi HC that Covid vaccines can't be mixed when taking the second dose
A Mirage2000 and A Sukhoi 30 of the Indian Air Force on a training mission crashed separately, in Bharatpur in Rajasthan and Morena in Madhya Pradesh, killing one pilot
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Big Banks Will Need To Be Leaner And Better Governed

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

The government has rightly taken a decision to merge some PSU banks to create bigger, and hopefully better, banks. This magazine had been the first to cite sources to report that a mega merger of banks was on the cards over a week ago. But a merger of banks can only be successful if several other things are streamlined. Smaller banks have lesser checks and balances but serve a purpose in catering to regional areas and small businesses. But with a plethora of banking licenses issued now and a host of NBFCs catering to such needs, they have outlived their purpose. Bigger banks with better checks and balances and stronger balance sheets can focus on big projects and evaluate the risk factors in a better way. They can be more competitive, locally as well as globally, and can benefit from economies of scale if the problems of overstaffing, multiple branches at close-by locations and decision-making inertia are taken care of.

The government has announced that it will allow banks to appoint chief risk officers at market-linked remuneration. This is a step in the right direction. But if banking is to be taken to greater heights, market-linked remuneration has to be offered to all. The additional revenue outgo on this account can be neutralized if staff strength and number of branches is reduced. But bank unions are very vigilant and will not allow this. Hence, the most important thing now is to bring the unions on board.

The other thing to be tackled is related to technology. Banks in India use two platforms for core banking and merging the platforms is very difficult. The SBI and some other banks use TCS developed BaNCS while the Bank of Baroda and some others use Finacle developed by Infosys. Although the government has taken care to merge banks on the same platform, going forward, the need is to have a common tech platform for all banks.

The government must also tackle the decision-making inertia that has gripped PSU banks due to big loans going bad and the needle of suspicion pointing to collusion by bank officers. Some senior officers of many banks involved in major scams have been arrested too. This has made even senior bank officers fearful of taking decisions. With the state of the economy, big projects are also not being planned. Rajnish Kumar, the Chairman of SBI, has said that the reports of liquidity crunch in the banking sector are not true as the SBI is willing to lend up to Rs 1 lakh crore but there are no big borrowers. This is a problem that can only be solved if demand for goods and services rises and entrepreneurs plan big projects. But creating big banks, streamlining risk assessment processes and appointing risk officers will ensure that the banking system will be ready for lending to entrepreneurs when they plan big projects as and when demand picks up.