Tuesday, September 3, 2019

THIS FOR THOSE WHO ARE AGAINST OF BANK MERGER ....BENEFIT FOR ALL ...



The whole economy is focusing on credit growth and many well-renowned rating agencies,  consultants, advisors and few  MNC have painted this picture that credit growth will not happen through consolidation of the banking industry. Well everything is not linked with easy money flows into the pocket of the corporate. It is about building the economy into a lean structure, cutting out the extra fat.

Today we have to comply with Basel III and after few years Basel 4, Basel 5 etc will pop up in the next decade and the government has to keep injecting liquidity into the system. What nightmare it will be to keep the norms intact for so many Banks in India. My 2nd point is that despite having so many banks did the same reduce the gap of penetration of banks in rural India. Why did the NBFC business scaled up in the last decade where banks struggled with NPA created by political influenced banking people. Why every year the Indian government has to inject millions to billions into the Banking system. This money belongs to the taxpayer’s money. The same liquidity can be offered as tax incentive by reducing the tax slabs to the individual taxpayers. The same can be given as an enhancement under section 80C to the individual people.

The merger will release a lot of obligations for the future. The Indian economy does not need so any banks.  Future NPAs will come down, existing NPA will come down, the business will become easier for ARC and the biggest boon will be that the corporate Indian will not be able to take advantage of splitting up of loans and loan reconstruction by the corporate India. The post banking merger benefits cannot be measured overnight and the same cannot be derived in terms of valuations.  The Banking industry lacked in reaching to people. They even did not pass the benefits of the RBI rate cuts despite a repeated effort by the RBI.

PSU Banks got Rs 1.95 lakh crore capital infusion in 18 months. Every year the Govt have to inject the tax payer’s money into several banks just to keep them afloat. This same money can be utilized and invested in economic growth-related matters rather writing of loan created by manipulated bankers and credit risk analyst in a joint effort with corporate or under political influence. In future, this type of liquidity injection will not be required and the same inflow can be utilised in some other place.

In a recent report where an a joint study by Assocham-Crisil  states that Indian banks' gross non-performing assets (NPAs) stood at ₹9.4 lakh crore as on March 31, 2019. Much of this will come down and the government will be able to control the NPA issues.

Competition within banks will improvise and better control will come up. The new round of consolidation will bring down the number of public sector banks to 12 from 27 just a few years ago. These lenders will have no choice but to become more competitive because they’ll have to price consumer loans by linking them to the central bank’s policy rate. Banks are not for making a profit at the cost of Govt, but to bridge the gap for the consumers. This is a very strong and brave effort for the betterment of the economy.

The way NBFC have grown their business and their unsustainable business model raises lost of risk for the Indian economy in the long term.  The merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with business worth ₹7.95 lakh crore to make India’s second-largest bank. The other merger will be between Canara Bank and Syndicate Bank, which will make the country's fourth-largest bank, with ₹15.2 lakh crore in business. 

Also, Union Bank of India will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest public sector bank with ₹14.59 lakh crore in business. Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB with a business of ₹8.08 lakh crore. These economies of scale of business will make a huge impact on the long term benefit of the economy. As I said earlier every benefit cannot be measured right now.

Banking audit system has collapsed long back and no point of discussing internal control and concurrent audit etc. the Rising NPA and mismanagement and fraud cases have broken the faith of the audit. Consolidation will at least reduce the nightmare of the collapse and management of the banking industry will improvise.

Well, Post Merger India might soon get tax cut for individual citizens. Well balance of revenue and expenditure is art and the current government knows it well. How we can expect cut down in tax when the same money is being injected into liquidity management for the banks.

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