Merging again will be a better option; some good performance by Banks indicates otherwise!

Apart from SBI, there should be four nationalized Banks in four provinces after merging; IDBI along with some small private banks can be taken over!!

By S. Kumar                                            

Indian banking industry has recently witnessed the roll out of innovative banking models like payments and small finance banks. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry. As per the Reserve Bank of India (RBI)'s recent admission that, ‘India’s banking sector is sufficiently capitalized and well-regulated’. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.

History of success in just last five years: 

Large democratic country with 136 crore population in India, banking system at present consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions. As of November 2020, the total number of ATMs in India increased to 209,282. Assets of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20. During FY16-FY20, bank credit grew at a CAGR (Compound Annual Growth Rate) of 3.57%. As of FY20, total credit extended surged to US$ 1,698.97 billion. During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion by FY20. Credit to non-food industries stood at Rs. 105.53 trillion (US$ 1.44 trillion), as of January 15, 2021.Non-food industries grew at 5.7% in January 2021 as against an increase of 8.5% in January 2020. The digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments Innovation Index (FPII). 

Few examples: Key investments and developments in India’s banking industry include-

In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’ Association issued a revised code of conduct for digital lending. As of February 27, 2021, the number of bank accounts opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’ reached 41.93 crore and deposits in Jan Dhan bank accounts stood at more than Rs. 1.70 lakh crore (US$ 23.07 billion). On November 6, 2020, WhatsApp started UPI payments service in India on receiving the National Payments Corporation of India (NPCI)’s approval to ‘Go Live’ on UPI in a graded manner. In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘Healthy Life Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform. In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US$ 1.72 billion. In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement. In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.

The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs. 400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs. 156,746 crore (US$ 22.42 billion) in FY19.

Relook:

As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatize two public sector banks. Union Budget 2019-20, the Government proposed a fully automated GST refund module and an electronic invoice system that will eliminate the need for a separate e-way bill. Government smoothly carried out consolidation, reducing the number of Public Sector Banks by eight. As of September 2018, the Government of India made the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme an open-ended scheme and added more incentives. The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in public sector banks by March. In February 2021, Unified Payments Interface (UPI) recorded 2.29 billion transactions worth Rs. 4.25 lakh crore (US$ 57.68 billion). 

According to the RBI, India’s foreign exchange reserve reached US$ 574.82 billion as of November 27, 2020. To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural Development (NABARD). The number of transactions through immediate payment service (IMPS) increased to 346.55 million in volume and amounted to Rs. 2.88 trillion (US$ 39.57 billion) in value in January 2021.

Road Ahead:

Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. All these factors suggest that India’s banking sector is poised for robust growth as rapidly growing businesses will turn to banks for their credit needs. Also, the advancement in technology has brought mobile and internet banking services to the fore. The banking sector is laying greater emphasis on providing improved services to their clients and upgrading their technology infrastructure to enhance customer’s overall experience as well as give banks a competitive edge. India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in the digital disbursements. Overall if we tally banks in India on average are performing well.

Immediate measures can be taken:

So, if some PSBs like UCO and Central bank can be merged with Union bank of India, Bank of India and Bank of Maharashtra can be with Bank of Baroda with a change of regional name (i.e., Maharashtra National Bank as the same line of PNB), Punjab & Sind Bank with Punjab National Bank and Indian Overseas Bank with Indian Bank with change of names like South India National Bank. Regional tags will remain which will be good to feel by people of all four regions. Let Headquarter of Union Bank or any other after merging (with change of name like Eastern India National Bank) shift to Kolkata since the city was once a banking hub and there will be no nationalized bank HQ if UCO also sale out or merges in near future. Already there are many Bank head/corporate offices in Mumbai, so Delhi in the northern part, Chennai in southern, Mumbai in western and Kolkata in Eastern, all four metropolitan cities will have a head office of nationalized banks. IDBI, which made a good profit in last quarter against a havoc loss a year ago should reconsider to nationalized and consider some well performing private banks which has national present like Karnataka bank Limited, Laxmi Vilas, Rupee, Saraswat, DCB etc also can be taken over and merged with IDBI which can perform specially for Industrial and corporate business purpose instead of retail banking(existing retail banking can be transfer to other nationalized bank or a separate division within) . Life Insurance Corporation of India also can be fully merged with IDBI which will be an entity of insurance division of IDBI same as SBI life Insurance and other Banks which have formed the division with or without tied with an insurance company. Apart from the giant Bank SBI in India, there will be IDBI and four other Nationalized banks as stated above will be other giants and therefore there will be three angel’s competitions between Nationalized, Private and foreign Banks in India.

 Some suggestive words at end:

Though the FM at her budget speech declared privatization of two PSBs but no bedding yet made, it will take long time to complete various formalities including future of staffs and many other hurdles so it will be great if GoI formed a high-level committee with experts, make a survey nationwide for public opinions, talk with all Bank Unions and give-up the idea of privatization and rethink of merging some PSBs with others once again!

Writer is a Senior Journalist! The views expressed in this article are his personal.

Banks Image courtesy - Free Press Journal