A debate is going on with regard to the merits of consolidation in the Indian banking industry. Too many mergers may end up in value destruction rather than value addition. There is a need for a clear vision among regulator, government and banks vis-à-vis what they want to achieve through consolidation, i.e., strong muscles, greater size (balance sheet size/geographical size), a talent pool of professionals, reduced expenses level etc. Looking at the history of mergers in Indian banking industry, it cannot be said that those mergers were for growth.
It has almost become a fashion to ask for mergers of banks in India to face the competition arising from globalization. It is a well-established fact that even the biggest bank in India is nowhere as compared to big banks of other countries. To get the competitive edge, it is wrongly or rightly felt that Indian banks should, therefore, become bigger in size and resources. There is, therefore, no doubt in the minds of policy makers and regulators that Indian banks should become bigger and bigger, but the question that has yet to be answered is, in what form and way such growth should be achieved. It may have generic growth or it may grow through mergers and acquisitions. The vision for such growth needs to be spelt out, in fact growth could be of several types. The growth could be in the form of resource, both financial and intellectual. It could be to acquire more space in business and/or in geographical spread. The form of growth could be organic and/or through mergers and acquisitions. In fact, organic growth is obviously slow and it would not be wise to depend on that keeping in view the present trend of rapid globalization. It has, therefore, become almost inevitable for banks in India to look for mergers and acquisitions for attaining the size and/or competence that could make them aggressive to face the fierce competition that has arisen from globalization. This trend is visible the world over, particularly in North America and Europe. |
