By Dr. Biswadev Dash
It is now official that the union Government have allowed the merger of the State Bank of India (SBI) with 5 associates banks. These five associate banks are State Bank of Bikaner and Jaipur (SSBJ), State Bank of Travancore (SBT), State Bank of Patiala (SBP), State Bank of Mysore(SBM) and State Bank of Hyderabad (SBH).
From 2008 the State Bank of India have started the consolidation process. State Bank of India had first merged State Bank of Saurashtra in 2008 and State Bank of Indore in 2010. SBI has maintained since then that it would merge others as well but none of its initiatives fructified due to lack of capital, However since then SBI had had set up a crack team to prepare for amalgamation of associate banks.
The overall output will be the merged entity will create a banking behemoth. The SBI will now in a stronger position to compete with the largest in the world with an asset base of almost Rs 37 lakh crore, with 22,500 branches and 58,000 ATMs as on December 2015. At present State Bank of India alone has close to 16,500 branches, including 198 foreign offices spread across 36 countries.
With a consolidated Indian banking structure it would be a positive development in the long term for the Indian banking system.
(1) We should have strong banks rather than a numerically large number of banks.
(2) The credit rating will be higher as consolidated banking system shall enjoy scale benefits leading to better diversification of risks and stronger overall profitability.
(3) A consolidated system would be better in achieving financial inclusion.
(4) The consolidation (among public sector banks) coupled with higher capital and governance reforms would position the banking system better in support of a more open and higher-growth economy.
(5) The banking system would need sufficient lending capacity to fund large corporate as India Inc., expands and extends its global reach.
The private credit to GDP in India will rise from current levels of just over 50 per cent as the middle class grows and will become more affluent. This is in fact a burning issue. This would imply higher credit growth rates relative to GDP over an extended period. In fact it is a starting process. The banks in India will see tremendous mergers & acquisition hereafter. This may have stiff opposition from the employee unions. After the merger now there are 27 public sector banks. Practically when the dust settles, the number of nationalized banks will remain at 8-10 very competitive banks. Some of them are going to be large scale global players, while some are going to be differentiated banks. The key fundamental issue that emerges is that how it is viewed. How far the nationalized banks can boost themselves and help to grow the Indian economy along with focusing on growing of their own assets at the same time.
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