iS IT possible that after merger of banks, loans given will not turn bad and how bad loans will be recovered without any delay from defaulters

Merger of public sector banks is in news. It was in news during previous government too. And the idea of merger and consolidation of banks has been hovering around since eighties . 

Present government and specially our Finance Minister like all his predecessors is also of the view that merger of banks and consolidation of banks will help in increasing balance sheet size and in formation and creation of  powerful global banks . Our FM thinks that if the banks are bigger in balance sheet size they will be able to extend large credits.

Here I would like to ask one question, whether banks were nationalized in 1969 to make them globally competitive or to help poor and villagers who were being exploited by local money lenders? Banks were not formed to make it global player. In fact , it is always said that even now banks are beyond the reach of poor . Private banks do not take part in lending to poor or lending for infrastructure of national priorities, it is always PSBs which play this vital and unavoidable role.

If big banks are easy to control and regulate , then SBI should be most healthy bank but it is not at all so. In fact , if all hidden bad loans of SBI are exposed, I think SBI will prove to be weakest bank in the country. Similar is the position of almost all so called big banks or good banks which are duty bound to absorb weak banks provided their manipulation game is exposed and all hidden bad loans are declared NPA as per RBI norms. 

Welfare activities and national priorities:- 

Banks are most powerful tool in the hands of a government by which it can put in force the financial policy framed by it keeping in view national priorities and thrust areas of lending . It cannot allow PSBs to make finance to companies and individuals as per whims and fancies of the top officials of these banks . It  cannot allow PSBs to deny lending to poor and weaker section even after mergers .

From time to time GOI announces debt waiver scheme due to some reason or the other . GOI put pressure on bankers to help and rehabilitate sick industries . Various types of interest subsidies are allowed to poor, to housing sectors , exports , priority sector industries and trade. Interest rate concessions are allowed to agriculture sector , export sector and other sectors which comes in the list of national priorities. 

Can any government do all these activities without jeopardising bottomline of these banks? 

And if such activities are unavoidable , then government should make it clear how after consolidation of banks, these problems will be dealt with in better way? 

How it is possible that after merger of banks, loans given will not turn bad and how bad loans will be recovered without any delay from defaulters. Merger of banks can in no way help in growth of credit, in improvement of quality of lending, in recovery of bad loans and in reduction of Non-Performing assets. GOI should make it clear how bigger banks will be in a position to compete with their private counterparts when stuff served by them are different.

Government of India has to do several social welfare activities , have to arrange cheap fund for industries , have to focus on sectors passing through critical period , have to promote export and demotivate import , have to stop lending in sectors which has reached its optimum level of demand or which has more demand than supply and so on. 

Can merger of banks help government in resolving these issues in easy , comfortable , convenient and better way than they are being handled hitherto? 

Expansion of banks and ATM:  

If GOI think that fewer banks will be easy in management and control of NPA, then why GOI has given and has been  giving new licenses for opening of more and more banks during last three years?

If merger is being really contemplated and unavoidable for betterment of the Indian economy, why public sector banks are being allowed to open new branches , new ATMs and carrying out of renovation of old branches  . 

It is but natural that after merger of banks , branches of many banks will have to be closed and many existing branches will be realigned to cut avoidable cost and to avoid duplication of branches in the same area. Many ATMs of banks will become useless and unviable entity as soon as merger of banks is accepted. Similarly expenses on renovation of existing branches  will be direct loss to bank because after merger many branches will have to carry out renovation work in new framework . 

New entity after merger will have new name and new brand image and hence majority of furnitures , boards and hoardings will have to be altered. As such it is the need of the hour that GOI put complete ban on spending on new branches , new banks, new ATMs and on work of renovation 

It is undoubtedly true that banks can cut cost to a great extent with the help of merger by reducing superfluous branches, by curtailing superfluous manpower and by saving expenses on many other associated matters. It may give temporary relief to banks and give a short lived jump in profit but its repercussion will prove more costly if the same culture of banking is allowed to continue.

Quality of Human Resource, Politicians, Judiciary , Police  and Administrative officials:-

I cannot visualise any change in quality of manpower post merger unless and until Policy related to Human Resources are changed from grass root level and its execution is done honestly and sincerely. Need of the hour is not to frame good policy but to ensure execution of policy in real and true spirit which has been completely lacking .

Similarly quality of bank’s assets cannot improve until there is change in attitude of bank officials, politicians and borrowers. Merger of banks alone  cannot solve the sickness caused by increasing burden of NPAs and continuous erosion in profitability, capital and capacity to sustain losses. 

By merger, GOI can put carpet on volume of bad loans for the time being or transfer the burden of NPA to ARCs or to bad bank. GOI can change the name of bad loans, change the place of bad loans, can change the definition of NPA and so on but cannot stop further creation of bad loans using the tool of merger and consolidation.

For last two decades , GOI have been  pretending to act against defaulters , appearing to take action to contain NPA , appearing to speed up recovery of bad loans and so on. But nothing happened in true sense , they made headlines in newspapers and become a point of debate on TV channels. But NPA load has been rising without any brake year after year. And the most painful fact is that many times of existing declared NPA is still hidden in the system. 

It will not be surprising for me if NPA goes upto the level of even 50% and more if the same culture of lending , same culture of compromise, same delay in recovery of bad loans , same sympathy with defaulters , same target oriented lending continues, same flattery and bribery based promotions take place in banks , same hatredness with officers of banks who are not yeoman continues . 

Health of banks cannot improved only by consolidation if the character of corrupt team of Chartered Accountants, Valuers, Architects, administrative officers and politicians do not change . 

Health of Banks cannot improve if defaulting borrowers are not taken to task immediately and without inordinate delay. Sickness of banks even after merger will become more critical if credit decisions are taken under pressure of politicians and loans are waived under political orders. Recovery of bank loans from defaulters cannot take place until judiciary at all levels is active , effective and honest.

Interest Rate Structure :-

It is absolutely wrong thinking of rulers of the country that reduction in interest rate on credit will help in growth of credit, will  help in improving quality of lending and will quicken the progress on recovery of loans from defaulters. 

Rather I am of strong view that GOI should adopt Uniform Interest Rate Structure keeping in view national priorities and need of the hour and immediately stop ongoing unhealthy inter bank competition . I have written numerous letter in this regard .

It is good if all PSBs together compete with private banks but it is totally bad if 28 PSBs of same government compete among themselves and cause loss to people of India.

Banks will prosper if bank officials devote their entire energy in banking activity only and refrain from non-banking products like insurance . Banks can earn a few crores of rupees by way of commission  by selling insurance products but during the course of getting this business, they cause loss to thousands of crores of rupees by indulging in poor quality lending , poor monitoring of assets and by neglecting recovery of loans from defaulters

SOURCE IMPORTANT BANKING NEWS BY DANENDRA JAIN