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`Time not ripe for merger of banks'

By Our Staff Correspondent

UDUPI, OCT. 31. Speakers at an interaction programme on "Should banks be merged," organised by the Corporation Bank Officers' Organisation here on Saturday, said that the time had not come for mergers and acquisitions in the banking industry.

On creation of small number of large banks through mergers and acquisition, the former Chairman and Chief Executive Officer of Lakshmi Vilas Bank Ltd., Karur, K.R. Shenoy, said mergers could be thought of only when a saturation point on financial aspect of the banks was reached. But such a stage had not arrived yet. The net asset ratio of the banks had doubled in 2003 when compared with that in 1998. The Indian banking sector was most successful next only to the U.S. banking system in 2002, he said.

Gujjady Prabhakar Nayak, a chartered accountant, said that mergers might appear to be beneficial from the point of view of profits and administration. But the common man would be left out of big scale banking, making it an unattractive proposition.

K. Krishnamurthy, former professor, Department of Economics, Milagres College, Kallianpur, said merger per se might not appear wrong in the light of globalisation. According to the Reserve Bank of India, 20 private banks were sick and they should be consolidated. But these banks could be acquired by Public Sector Banks. There was no need for merger right now or in the near future, he said.

Efficiency

On the question whether mergers would improve efficiency, the joint general secretary of AIBOC, T.R. Bhat, said the presumption that size would improve efficiency was wrong. Though the Japanese banks had large assets, they also had a high non-performing assets of 8.5 per cent. There were 7,000 small banks in the U.S., which were rendering good service, he said.

Mr. Nayak said education, training and its implementation were important for efficiency of workers than size. Within the same bank, different branches had different levels of efficiency. Mr. Krishnamurthy said that studies in the U.S., the U.K. and Japan showed that there was no correlation between size and efficiency. However, the labour was rarely taken into confidence on the question of merger, he said.

Transparency

On an alternative if mergers were not a means of improving efficiency, Mr. Bhat said the regulatory mechanism should be strengthened. Banks should be given professional autonomy and corporate governance encouraged.

There should be transparency in the acts of the RBI and greater public awareness, he said.

Mr. Shenoy said that there should be an open and transparent system in the sector. Individual banks should be allowed to become strong, he said. Mr. Nayak said the capacity of the banks should be increased. The role of the bank employer, employee and customer should be complimentary, he said.

G.V. Joshi, co-ordinator, Chair on Bank Management, Department of Economics, Mangalore University, moderated the proceedings.

D.N. Prakash welcomed the gathering.

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