Page 45 - Banking Finance June 2019

ARTICLE

using square of on-balance sheet market share of all banks The banking sector in India is fragmented with a number of
in India works out to be 604 implying that the current mid-sized banks. As on March 2017, there were 1,40,216
banking system is diffusive. Most of the PSBs in India are branches of Scheduled Commercial Banks in India and their
competing within themselves; have same business models business was as follows:
and compete in the same segments as well as same
Deposits & Credit of SCB's as per Bank
geographies. Hence there is a need of few big and strong
banks around which the banking system could be structured. Group, March 2017 (in million)

Bank Group No. of Deposits Credit
The concept of consolidation of PSBs in India is not a recent
Offices
phenomenon. Way back in 1991, when PSBs had over 90%
SBI & Its 25262 24477477.8 16827724.7
of the market share, the Narasimham Committee had
Associates
recommended a three-tier banking structure by merging
PSBs. It had proposed that there could be three large banks Nationalised 68880 49998215.9 35221581.8
that would have international presence, about 8-10 national Banks
banks, and several regional banks. The Raghuram Rajan Foreign Banks 293 4455221.5 3561714.0
Committee report on Financial Sector Reforms (2008) too
RRBs 21358 3657065.9 2297041.4
discussed bank consolidation and suggested takeover of
Pvt Sector Banks 24423 24712313.7 21270623.0
small, regional and unprofitable banks by well-managed
financial institutions seeking complementary assets. Again All Scheduled 140216 107300295 79178685.0
in the year 2014, PJ Nayak Committee also suggested that Commercial
the government should either opt for merger or Banks
privatization of few of the state-owned banks.
Source: RBI dbie BSR
Although the idea is not new, but looking at its
implementation, there have been only few instance of the
mergers in post nationalisation era. One was merger of two
PSBs in 1993: the takeover of New Bank of India by Punjab
National Bank (PNB). Again in 2004, privately owned Global
Trust Bank (GTB), was merged with the public sector Oriental
Bank of Commerce (OBC). There have been few other
instances of merging of private sector banks also. 2017 was
historical for banking sector which saw the merger of SBI
with its Associate banks and BMB. Post merger it forayed
into top fifty banks in the world, the first of its kind in Indian
banking history.

The share of public sector banks has been continuously
declining since the nineties. The entry of payment banks,
wallets and fintech companies with advanced technology
and user friendly interfaces is reducing their share further.

WHY consolidation?
India is facing a twin balance sheet problem, wherein the
GDP is growing, but the banks are in a credit slump. In the
fiscal Year 2017 bank credit grew @5.08%, whereas GDP

BANKING FINANCE | JUNE | 2019 | 45