Page 46 - Banking Finance June 2019

ARTICLE

to be technologically more advanced than them. There is
urgent need to use analytics, business Intelligence, artificial
intelligence and internet of everything. There would be
resource conservation for smaller banks when they merge
with bigger banks and use these technologies. Hence, there
is a huge scope of consolidation in this sector. India needs
to have large banks (global sized banks) that can support
the investment needs of economy and sustain economic
growth.

Consolidation is done with various objectives, some of which
are listed below:

grew @7%. Many economists suggest that the relationship
between GDP and Credit growth is not working in Indian
context. Industries are readily raising cheaper short term
funds from the debt market and other sources. Further as
per RBI Annual Report, Economic Review deted 29th Aug
2018 the credit to GDP gap continued to be negative
throughout 2017-18, implying that actual credit demand
remained lower than its potential. The credit-to-GDP gap
which is also known as the "credit gap" is defined as the
difference between the credit-to-GDP ratio and its long-term
trend. With stagnant credit growth and mounting NPAs
banks are caught in a vicious cycle where there is lesser
demand of credit and mounting losses. Consolidation should not be seen as a stop gap arrangement.
It should be a well crafted strategy and suitably
implemented. It may take some time for the merged entity
Many critics of consolidation feel that we need more banks
to serve customers in far flung geographical locations. But to reap benefits of consolidation as many times results are
to take care of this valid concern India has enough not immediate. The ultimate aim is to consolidate bank's
cooperative banks and micro-financial institutions to provide resources and talent to improve the quality and efficiency
community-level banking. Hence, consolidation of PSBs is a of services and also make their presence felt in the
viable idea so that there are fewer but healthier entities. international arena.

PSBs are already facing huge challenge of maintaining As per BASEL III, in the global markets GSIBs (Global
capital as per BASEL III. They are dependent on government Systematically Important Banks) have to maintain a higher
amount of CET1 than other banks. Further, they also need
for infusion of capital. Already eleven banks are under
to maintain TLAC(2) requirements as per BASEL III which has
Prompt Corrective Action of RBI due to high NPA, Negative
ROA, and inadequacy of capital. As a business entity, it forced many internationally active banks to re-evaluate their
cannot survive for a long term in the given conditions. strategies into de escalating and diversifying their business
Hence, there has to be a synergy based consolidation which operations. This means that strong Indian banks with high
is beneficial to all stakeholders as well as bank customers. capital adequacy and having global aspirations can make
their foray into the global bank community. The issue
There is also a need to look at the new players in the field assumes significance as of the top ten companies in the
i.e payment banks fintech companies etc which may be Forbes Global 2000 List (2018). Inspite of so many disruptions
in the financial sector, the banking business is getting
smaller in size but are rapidly growing in business. PSBs need

46 | 2019 | JUNE | BANKING FINANCE