Bank Mergers: A Flawed Move To Boost Growth?

Sitharaman’s decision to merge 10 banks into four may be riddled with leadership and decision-making challenges.

- Salil Panchal

Finance Minister Nirmala Sitharaman’s mega bank-merger plan, if successful, will see 10 government-owned banks being merged into four. Only 13 such banks will now exist instead of 27.

In the new move, Oriental Bank and United Bank is to merge with the Punjab National Bank, Canara Bank with Syndicate Bank, Union Bank of India and Andhra Bank with Corporation Bank, and Indian Bank with Allahabad Bank. The belief is simple: Big banks can lend effectively, mobilise deposits efficiently and meet priority sector lending norms better.

But experts say Sitharaman has only announced what P Chidambaram sought to do through his push for a bank consolidation in 2011-12, when he was finance minister.

“The government only appears to be showing that it is doing something. This reform is no different from what Chidambaram had proposed. It's just that it's being done on a massive scale. This government announces these measures with grand plans which tend to wreck the economy—whether it be demonetisation, GST or these reforms,” says Hemindra Hazari, an independent banking analyst.