New Delhi: Former RBI Governor YV Reddy said that global experience has shown that almost half of the bank mergers have been ineffective and will not solve the issue of governance. Banks should be merged based on synergies with the initiative coming from the board of directors and not the government, according to media reports.
“Global experience in the banking system shows that only half of the bank mergers have been successful,” Reddy said at the 6th SBI Banking and Economic conclave.
“If the purpose is governance, it will not be solved by merging two banks. However, if it’s for economies of scale namely operational efficiency it could happen. Mergers could be done by the respective boards as well by analysing synergies, it need not necessarily be through government,” he added.
Finance Minister Nirmala Sitharaman recently announced the merger of 10 public sector banks -- Punjab National Bank, Canara bank, Union Bank of India, Indian Bank, United Bank of India, Allahabad Bank, Syndicate Bank, Corporation Bank, Oriental Bank of Commerce and Andhra Bank.
The government's move to consolidate public sector banks indicates its resolve to address the slowdown in GDP growth, as the country's economy expanded at its weakest pace in over six years in the April-June quarter of 2019-20.