Merger of state-run banks ‘right move but not at the right time’, says Raghuram Rajan

The Print 
October 12, 2019

The recent merger of 10 state-run banks into four entities was “unnecessary”, given that the economy is in a downturn and these banks are grappling with high levels of bad debt, former Reserve Bank of India governor Raghuram Rajan has said.

Delivering the O.P. Jindal lecture at Watson Institute, Brown University, on 9 October, Rajan pointed out that mergers take a lot of time and are a ‘big headache’, adding that the mergers are probably the “right move”, but not at “the right time”.

“Bank mergers are coming at a time when the banks are dealing with high levels of NPAs and at a time the economy is slowing… Banks are going to be engulfed in managing the mergers over the next few years instead of focusing on making better loans,” he added.

The government announced the merger in August and said that it will help ease the credit flow to the economy. It proposed to merge Oriental Bank of Commerce and United Bank of India with Punjab National Bank, Syndicate Bank with Canara Bank, Andhra Bank and Corporation Bank with Union Bank of India, and Allahabad Bank with Indian Bank.

However, mergers are a time-consuming process, as evidenced by the merger of Vijaya Bank and Dena Bank with the Bank of Baroda last year.

The banks and the government had anticipated the merger to be complete by the start of the current financial year, but complete integration is likely to be completed only by 2021.

MSMEs and loan melas
Rajan also flagged the government mandates imposed on state-run banks, like lending to micro, small and medium enterprises and loan melas, which result in bad debts.

“Lending to MSMEs hasn’t been turning out particularly well,” he said, adding that the regulatory forbearance given to MSME loans going bad is “an attempt to try and not recognise the problem”.

The RBI, in January this year, had allowed for one-time restructuring of stressed loan accounts of MSMEs.

Rajan also questioned the level of credit assessment that takes place at loan melas before the loan is sanctioned. The idea of loan melas in 400 districts was floated by the government last month to maximise disbursement of retail, agricultural and MSME credit during the festive season.

State-run banks were given a target of bringing in five customers for each existing customer, leading to worries that the banks may lend indiscriminately only for these loans to turn into NPAs later.

Rajan also recommended bringing in governance reforms in state-run banks and attracting the right talent through competitive salaries.


Comments

Post a Comment

Popular posts from this blog

India Joins Russia in Voting Against West-Backed Move to Expand Powers of OPCW

The Wire: June 28, 2018 New Delhi: India voted against a UK-backed move that will allow the global chemical weapons watchdog to apportion blame for illegal attacks, criticising the decision to grant “unchecked powers” to the head of the group which could be used for “partisan” purposes. On Wednesday, more than two-thirds of the member states of the Organisation for the Prohibition of Chemical Weapons (OPCW) voted to authorise the international body to identify the perpetrators and sponsors of a chemical weapons attack. It also specifically called on the OPCW’s technical secretariat to begin work on identifying the perpetrators behind the use of chemical weapons in Syria. The draft decision, sponsored by 30 countries, was adopted at the fourth special session of the conference of the states parties to the Chemical Weapons Convention at the Hague, with 82 in favour and 24 negative votes. While Europe, the United States and their allies voted ‘yes’, there was strong oppo...
Read more

As financial insecurity rises in urban India, so does investment in insurance

Image
Scroll.in March 13, 2020 Urban Indians are becoming less confident about their financial security. Up to 58% of them fret over financial independence post retirement, which is a 4% increase from last year. An equal share of urban Indians worry about meeting their daily medical expenses and sustaining their current lifestyle once they stop working. The findings are part of a survey published by Delhi-based Max Life Insurance in association with London-based consultancy Kantar. The firms surveyed 7,014 respondents in 25 cities, including six metros, nine tier-1 cities, and 10 tier-2 cities, between December 2019 and January 2020. Source: Max Life Insurance via Quartz The trends Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz A significant share of urban Indians also say their families will have no financial support in the event of the breadwinner’s death. In such a scenario, around 57% believe the family sav...
Read more

ED tracks Swiss Bank A/Cs of Agusta scamster

The Poineer February 10,2019 Rakesh K Singh The Enforcement Directorate (ED) has tracked a dozen Swiss bank accounts in the name of Rajiv Saxena, who is key accused in the Rs 3,600 crore AgustaWestland VVIP chopper scam. The ED has also found out accounts held by  his family members and associates where the kickbacks in the now scrapped deal were allegedly parked. Two bank accounts are in the name of Rajiv Saxena’s  associates Pankaj Jain and Sumita Jain who are also the authorised signatories. The  third is in the name of another associate Ajit Singh Bubber, but Rajiv and his family members are authorised signatories. The remaining nine accounts are largely owned and operated by Rajiv, his family members and associates. Rajiv Saxena was deported by the UAE authorities on January 30 and the ED formally arrested him the next day and a court later granted his remand to the agency. He is currently undergoing custodial interrogation by the ED. The agency had in 2017...
Read more