Let us change from Corona Virus to some other topic. Need a distraction. Merger bells are tolling for ten state-run banks, which will re-assert themselves into four bigger banks from April 1. Styled as the ‘mega bank consolidation plan’, the amalgamation raises some hope that there would be better management of the banking sector and the era of free-wheeling “loan mela” might be a thing of the past. There is a deficit of optimism too in a more pronounced manner, for the reason that no good news came from the Indian banking sector for quite some time. Things went berserk at different levels, several prominent banks were at breaking level, the last of them being Yes Bank, and their customers left to float in distress. The banking sector’s style of functioning in selective cases, some with political support and bureaucratic indulgences but, most importantly, the wheeling dealings of Bank bosses have already caused immense damage to the nation’s economy.
The claim by the government as also RBI that the merged banks, bigger in size, will have increased lending capacity, which will be of more benefit to the businesses and industry could also be a reason for worry in the future. A proposition is that the ceiling for individual borrowers will rise by nearly Rs 3,000 crore. A promise is also of introducing special loan plans for the MSME sector – something that was promised at the time of Bank Nationalisation by Indira Gandhi in the 1970s. At that time there was partial success and MSMEs did see the light of day. However loans were not easy to come by to the needy in these sectors while big sharks managed or manipulated things to their advantage.
There are apprehensions as to whether the merger at this critical time of the COVID-19 crisis, which has largely hit the banking operations across the country, could cause more problems to the customers. The process of merger, starting with the balance sheet merger from April 1, will carry on for nearly a year before it is completed. The plea from the association of bank officers a day ago to postpone the merger has been rejected by the finance ministry and RBI. It could mean a confidence on the part of the RBI it will be in a position to oversee the merger without serious hurdles. Sadly, the RBI has not exhibited any stellar qualities for which people should believe in the claim that the transition will be smooth.
To the general public, it is a matter of serious disappointment that the banking sector in the country as a whole is faced with adversities. The RBI, which regulates banking operations, itself developed schisms and frequent change of heads, affecting the morale of the banking sector as a whole. The NPA or bad debt crisis, which at one time involved a total unpaid liability of over Rs 10lakh crore, came as a shock to the nation and beyond, also affecting the reputation of the Indian banking sector. The iteration of crises affecting both PSBs and private banking institutions in quick succession added to the public dismay.
In the two terms of the Narendra Modi governments, very little has been done to arrest the dangerous drift. With bad debts, the NPAs, largely by willful defaulters who have the means to repay but will not, and who would rather engage in fights through courts to escape the liability net, led to a crisis of confidence in the banking sector. Those who scooted from the scene and found safe sanctuary in foreign soil, keep fighting their cases at multiple levels, and the government is yet to show the seriousness to bring them to book or get the money back from them to revitalize the banking sector.
Perceptions are that the Modi government does not wish nor have the talent at hand to help the banking sector sail out of the present crisis. The UPA period, known for its better management of the economy in terms of GDP figures and promoting an overall feel-good factor about the national economy, too ended in a whimper as the economic growth rate had come down in the last phase of its second term. The Modi government gave the impression that it was going round and round, and not producing results vis-à-vis settling the banking sector problems. In this context, it is a moot point whether the merger of 10 PSBs will itself help better the future of India’s banking sector as a whole. Most probably this too will surface as another ill thought out and unplanned move, just like Demonetization, implementation of GST and now this handling of the COVID 19 crisis.
