Relevance : GS Paper III
The Narsimha Committee
The merger move of Public Sector Banks (PSBs) was first mooted by the Narasimha Committee more than a quarter century ago.
Issues with the recent bank mergers
- merging weak banks, some of which were still under Prompt Corrective Action (PCA).
- merger triggers anxiety and insecurity in staff, leading to a slowdown in business.
- gains from the mergers for large PSBs would be illusory in the absence of a sound management
- The post-merger scale economies are not feasible in India.
Way forward
- It needs to be ensured that there is no leadership vacuum in the anchor banks.
- There is a need to recruit professionals in key areas in which PSBs are under-equipped.
- should actively plan steps to offset a possible slow expansion in bank credit.
- Govt,. should consider converting a few ‘weak’ PSBs outside the merger into regional banks.
Conclusion
While mergers can result in handsome productivity gains, what matters is the quality of execution.
