The Union Cabinet recently approved the merger of the State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore, State Bank of Hyderabad as well as Bharatiya Mahila Bank with the State Bank of India. If the merger gets off the ground well within the set time-line, much synergetic benefit can be gained out of it. However, it is a mammoth task for the government, looking at the overall bank size, interconnection and complexity involved, and dealing with the various political unions of respective banks.
The discussion on merger in the Indian banking industry is not a new concept. In fact, the State Bank of India itself is a product of mergers of the Presidency Banks. Since the early 1990s, financial sector reforms have talked about consolidation of the banking sector. In 1991, the Narasimham Committee report suggested the need for large-sized banks for international presence. There are various pro and cons against consolidation; however, consolidation of commercial banks with established synergies will lead to more benefits than detriments.
Public sector banks in India own a disproportionately large share of the total banking industry—they hold about 74% of banking assets, compared to 26% in the UK and 32% in Germany. The objectives of financial inclusion and broadening the geographical reach of banking can be achieved only with the merger of large pubic sector banks and leveraging on their expertise.
source The financial exopresses
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