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  • Category: Banking

    Is merger of nationalized bank: good or bad


    Are you having a query about merger of nationalised banks and its impact on various stakeholders? Searching for advice regarding whether it will be helpful to the customer or not? Scroll through this Ask Expert page and find answers for your query here.

    I want experts opinion regarding merger of nationalized banks. Does it
    become helpful to common people or it becomes new headache ?
    And how to face this upcoming banking system altered situation?
    Can government achieve it's target of financial inclusion and fraud risk minimization by means of merger?
  • Answers

    3 Answers found.
  • The merger of banks will have some advantages and some disadvantages. For a common man, there will not be any different.


    Advantages:
    Banks will become big and strong
    There will be some cost reductions
    Oversees presence will be there for these banks and they can attract oversees business also.
    A bigger bank can compete with international banks to provide loans.
    If the number of banks is coming down means they will become customer friendly. They will be competitive and profitable.
    Banks will become more effective and loan recovery will be more professional.
    Big banks will have good resources and the dependence on government when in problems will be less.

    Disadvantages:
    Past mergers of banks have been disappointing. There was no synergy
    To achieve common Organisational cultural is difficult.
    To find a solution to HR problems is difficult

    drrao
    always confident

  • The merger of the banks will provide certain benifits to both customers and the management and such steps will have the following advantages-
    1) There will be reduction of the man - power by way of merger of banks from the existing level where large number of man power is required considering the total employees working in each bank. Such a system would provide effective cost cutting in terms of salary bill of the employees.
    2) Accountability of the bank - employees will enhance because of deployment of fewer people for a particular job. In the past, same job was being done with multiple people and hence there was absence of responsibility quotient.
    3) A large bank would have sufficient capital reserve to tackle the need of customers such as loan of different types apart from generating the confidence of customers in such banks.
    4) Such banks will operate in the competitive manner at par with the international banks and that will enhance their rapports.
    Disadvantages -
    1) The customers may loose some of the benifits operating individually such as some banks provided more interest in their saving bank accounts prior to merger.
    2) Competitiveness of the banks will lessen because of existence of lesser number of banks.
    3) If the bad debt loans go on the higher side, loans cannot be compensated apart from fresh infusion of resources from the RBI for its functioning.

  • There were many banks in India before nationalisation of the private banks and after nationalisation also the converted entity called as PSU banks were successfully doing their business. Individual banks had different management and administration and had different clients to whom these banks served the loans and other services. Though RBI is the overall regulatory authority but the banks worked under different ideologies and had aligned to different business houses and in that process the recovery of the loans was staggered and some NPA issues arose out of these situations. Considering this and many other factors Govt thought to merge some of the banks in one single entity to bring a change in the working of these banks and basically it was a managerial exercise to change the mindset of working persons by bringing changes in the structure subsequent to these mergers. Management Gurus often claim that reorganisation and restructuring help in many cases and Govt believed that this envisaged change would be beneficial for the financial health of the country.

    Some of the anticipated benefits out of this merger are cutting the extra manpower by integrating the branches of different banks, making more transparency in the system, being a bigger entity would increase the funds in hand and their easy deployability, increase of income as some expenses are common between the branches, bigger banks can operate in an international platform where bigger opportunities are there undertaking international transactions, coordination with mutual funds and share dealing companies can be done from a single point for intelligent investing etc.

    On the other hand there are some downsides also like managing a bigger company requires a competent leader at the top, managing a large number of employees and their union affiliations would be a challenging task, switching of customer from one bank to another would not be so easily available to the customer as it is available today etc.

    There are always pros and cons in such important decisions and Govt would take a conscious decision based on the advices of expert committees.

    Knowledge is power.


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