Tourists at the Tadoba-Andhari Tiger Reserve in Nagpur were recently treated to a rare sight. On an early morning in November, a healthy sambar was seen trying to dodge two tigers by entering the shallow waters of Telia Lake, only to be attacked by a pair of crocodiles. The sambar battled hard with the crocodiles for most part of the day before being mauled by the tigers in the evening when it came out of the lake and tried to sneak into the forest. The tired crocodiles had given up, but the tigers were waiting for the kill.
For a moment, replace the sambar with some of the relatively smaller public sector banks in India such as Dena Bank, Vijaya Bank, Andhra Bank and Corporation Bank. They are a bunch of efficient and not-so-efficient banks with assets ranging from Rs40,000 crore to Rs1 trillion. Also replace the tigers and crocodiles with the relatively bigger public sector banks—Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank Ltd and Union Bank of India (UBI) (with assets of between Rs1.5 trillion and Rs2.5 trillion). The Denas and Corporations will be attacked by the Canaras and Bank of Indias the moment the government converts the Indian financial sector into a reserve forest of big banks.
Also Read Tamal Bandyopadhyay’s earlier columns
A day after a few bureaucrats of the finance ministry held a meeting with the chief executive officers of five big banks on consolidation, Canara Bank chairman A.C. Mahajan told reporters that he would look for acquisitions and an internal team would identify the potential targets. S.K. Goel, chief of Kolkata-based UCO Bank, would draw up a blueprint to buy a smaller bank. I am going by media reports and haven’t spoken to Mahajan or Goel. I have, in fact, spoken to a few others who have not been quoted in the media and most of them, given a choice, would love to have a small bank on their table for breakfast, lunch and dinner much the same way the crocodiles wanted to kill the sambar and the tigers devoured it.
I am not against consolidation. Neither am I against big bankers’ appetite for a healthy meal. But there is something called dinner table etiquette in terms of the dress code, use of napkins, knife and fork, and so on. Just because India’s capital market regulator is not sensitive enough to the wishful market-moving statements, bank bosses should not compete with each other in fantasizing about who will take over whom. After all, barring two, all such banks are listed and investors rush to buy stocks when they hear the chiefs talking about identifying targets and setting up merger and acquisition teams for inorganic growth.
The talk about consolidation of public sector banks, which account for roughly three-fourths of the Indian banking industry, is at least five years old. In early 2004, then banking secretary N.S. Sisodia had sought the views of large public sector banks on consolidation at a meeting in Jaipur, kicking off the debate. At that meeting too, every banker wanted to be an acquirer.
To be sure, the Congress-led coalition government is in a better position to push for consolidation today than it was in 2004 as it does not depend now on Left parties for its existence. The Left parties oppose bank mergers out of concern that such mergers will lead to large-scale job losses. Any merger between two public sector banking entities takes place under an Act that stipulates that two banks can initiate merger talks, but the scheme of the merger must be finalized by the government in consultation with the central bank and it must be placed in Parliament, which reserves the right to modify or reject the scheme. In case of a merger between a public sector bank and a private bank too, parliamentary approval is a must. This means that unless the government is in a position to push through any merger, consolidation in Indian banking cannot take place.
Indeed, a near-decimated Left gives the government a handle to ensure Parliament’s approval for such mergers, but this alone cannot ensure consolidation. Since 1969, when Bank of Behar was merged with State Bank of India, till the union of Centurion Bank of Punjab Ltd with HDFC Bank Ltd last year, most mergers have been an offshoot of the central bank’s efforts to protect the financial system and depositors’ money and very few of them have been driven by the need for consolidation and growth.
At this point, bankers are looking at different geographies to find their strategic fits. So, Canara Bank in the south is eyeing Dena Bank in the west; Bank of India in the west is looking at Oriental Bank of Commerce in the north; UBI in the west is wooing Corporation Bank in the south; and Bank of Baroda in the west seems comfortable with Vijaya Bank in the south. Geographical reach is one of the many critical issues that needs to be considered along with work culture, technology platform, business mix and so on. Most importantly, who will head the merged entity? The CEO of a small bank will never be excited about merger prospects as he runs the risk of losing his job. One way of tackling this could be initiating the process after the CEO of the bank to be acquired retires. Also, it’s not acquisition, but amalgamation where the employees of small banks must be treated with the utmost respect. Finally, the CEOs should not talk till they act. I love the way some of them run their banks, but I don’t share their fantasy.
PS: I am taking a week’s break and won’t write this column next week.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Comment at firstname.lastname@example.org