Page 47 - Banking Finance June 2019

ARTICLE

stronger. India cannot afford to lag behind and hence there about 21,200 branches witnessed a 17% rise in net profit to
is a need for consolidation in the banking sector in order to Rs 2,950 crore in 2016-17. Their loans and advances
achieve its potential to the fullest. outstanding under various schemes rose 15% to Rs 3.5 lakh
crore as of March 2017.
Consolidation in banking sector is a widely accepted practice
in all parts of the world including USA and Asian countries.
For instance in the United States one can see a number of
large bank mergers, including Bank of America with Fleet
Boston, BT bank with Alliance bank and Key bank with first
Niagara Financial just to name a few. The three largest banks
by assets in USA have added more than $2.4 trillion in
domestic deposits over the past ten years as per Wall Street
Journal analysis of regulatory data(1). Further the number
of commercial banks in USA is showing a continuous decline
as shown in the diagram below:

Source: NABARD

The merger in numbers
The recent announcement made by our Finance Minister
on 18th Sep is a bold step towards consolidation of Indian
Banking sector, wherein Bank of Baroda, Vijaya Bank and
Dena Bank are to be merged in order to have a strong
competitive bank with economies of scale.
The new entity will have a total business of Rs 14.82
lakh crore, which is the third-largest in the country
behind SBI and HDFC Bank.
The combined entity would have 9,496 branches in the
Source: Federal Financial Institution Examination Council (US)
country, which would be the second-largest after SBI.
Data as of fourth quarter 2017
Vijaya Bank's presence in south India and Dena Bank's
Rising regulatory compliance costs, security issues and foothold in west India will bolster Bank of Baroda's pan-
dwindling profits are making it difficult for smaller banks to India presence.
achieve a minimum efficiency scale in banking. The
The BoB-Vijaya-Dena Bank merger will have the third-
consolidation in US banking is expected to rise further with
The Economic Growth Act (2) and Regulatory Relief Bill
coming into force wef 24th may 2018 which also includes
certain amendments to Dodd Frank Act and Consumer
Protection Act. These amendments are expected to reduce
compliance andadministrative costs in mergers.

Now coming to the Indian context, let's look at our Regional
Rural Banks. From 196 RRBs, the numbers have gone down
to 56 in 2017. Further, as per a press release dated 24th
July 2018 @pib.nic.in, the government is envisaging a
roadmap for amalgamation of RRBs within a state in order
to bring down the number of RRBs to 38 from the present
56. Looking at their performance RRBs operating through

BANKING FINANCE | JUNE | 2019 | 47