Merger of public sector banks should be between equals and added that things will start getting better on asset quality by the second half of the year. Sbi chairman

State Bank of India chairmanArundhati Bhattacharya said the merger of public sector banks should be between equals and added that things will start getting better on asset quality by the second half of the year. In an exclusive interview to ET, Bhattacharya said union of state-run banks is feasible but the lenders should be given time to ensure the mergers work.

There can’t be a one-size-fits-all approach, and the temptation to merge the weaker ones with the stronger ones should be resisted as it leads to the stronger one losing strength, she said.

“It (merger of banks) is feasible. It has been done in other countries. But you will have to give them time to do it and be able to show a turnaround. You cannot expect it to happen tomorrow and (hope that) day after things will be fine.

It won’t work like that. They will need 3-4 quarters to put it all together and come out on top,” Bhattacharya said.

The clamour to merge 21 PSU banks is getting louder with the government nearly shutting the capital tap. While investors are likely to provide capital to strong ones like SBI, which raised Rs 15,000 crore in a share sale, many others are likely to be shut out from the market. Some will have to be merged so that the capital requirement comes down and resources are better utilised.

“The smaller SOE (state-owned banks) are short of capital and it will be a struggle for them to raise funds unlike the larger banks, which may be able to access equity markets,” said Sumeet Kariwala, analyst at Morgan Stanley.

“Hence, the government may look at merging smaller, weaker banks with larger and relatively stronger lenders.”

Bhattacharya, however, said that may not be the right thing to do. The chief of SBI, which recently completed the merger of six banks with itself, said there should be a merger of equals so that synergies can be derived.

“It should be strong to strong and weak to weak, because if you do a strong and weak it doesn’t really make much sense since it unnecessarily pulls down the strong bank also to some extent,” she said. “And, of course, they need to look at other synergies… there might be synergies of systems, synergies of reach, synergies of different portfolios of business, synergies of cultural fit.

So it cannot be one size fits all.” Banks’ journey to becoming stronger entities may be full of surprises and painful events, but that is inevitable in the process of growing up, she said. “The alternatives are very few, so to that extent this seems to be the best way out,” said Bhattacharya.

“And, probably, this will be painful. But a maturing process and growth is always painful. You ask any teenager they will tell you, and it’s just like that for the country. We need to grow, we need to evolve.”