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This article attempts to position the issue of consolidation in Indian banking in a proper perspective, analyze the pros and cons and suggest a feasible framework for consolidation.
Consolidation in Indian banking industry has been a matter of debate amongst economists, bankers, trade unions and, of course, the political and bureaucratic setup of the country over the last couple of years. The stands that have emerged vary from one extreme of total consolidation to the other extreme of letting things lie as they are. Many participants in this debate have taken positions that lie somewhere in between these two extremes. A cursory look at these positions reveals the well-informed and not-so-well-informed approaches to the question of consolidation.
The entire financial sector—the banking sector in particular—is of fundamental importance to a developing economy. Vepa Kamesam, Deputy Governor, Reserve Bank of India once remarked, "A strong and efficient financial system is critical to the attainment of the objectives of creating a market-driven, productive and competitive economy and to support higher investment levels and accentuate growth. Banking by far is the most dominant segment of the financial system and plays a pivotal role in the development of a sound economy. A healthy banking system, besides providing necessary architecture for facilitating economic growth, also serves as a strong repository of liquidity."
The Indian banking industry is characterized by a multi-structured, multi-layered system. While the bulk of banking services are offered by the banks in public sector led by the Big Brother of Indian banking, State Bank of India along with its seven subsidiaries, the industry also includes private banks including foreign banks, cooperative banks (both urban and rural varieties) and regional rural banks. |
