Voices against public sector bank mergers are becoming louder.
After former Reserve Bank of India Governor Raghuram Rajan, here’s now a public sector bank boss which has openly aired his views against forced mergers.
“It’s not the right time for mergers,” said Indian Bank Managing Director Kishor Kharat. He said that banks would neither get additional capital by way of merger nor there would be any reduction in non-performing assets (NPAs).
Indian banks in the public sector space are weighed down by steep rise in sticky loans leading to net loss for many lenders and shrinking of capital. About seven of 21 state-run lenders are under Reserve Bank of India’s prompt corrective action plan.
“If merger is pushed (by the government), it will lead to further deterioration of banks’ health. Our focus will be diverted,” Kharat said in Kolkata at an event organised by Merchants’ Chamber of Commerce & Industry.
The government is keen to reduce the number of public sector banks to 15 from 21 to ensure economies of scale. Finance minister Arun Jaitley said the objective of the merger is to create stronger banks.
Former RBI Governor Rajan said that banks are already weak and that it would make mergers even more problematic. “You have explain how it is going to be easy to do that. Why this is going to be helpful and not just another distraction which weakens the entire entity,” he had said in a recent interview to ET.
