{"id":51995,"date":"2019-09-08T15:39:41","date_gmt":"2019-09-08T10:09:41","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?page_id=51995"},"modified":"2019-09-08T15:39:41","modified_gmt":"2019-09-08T10:09:41","slug":"auto-draft-2","status":"publish","type":"page","link":"https:\/\/forumias.com\/blog\/auto-draft-2\/","title":{"rendered":"[Answered] \u201cThe correlation between size and efficiency can not be fully established.\u201d In light of this critically analyse the outcome of Merger of banks."},"content":{"rendered":"\n
Demand of the question<\/strong>
Introduction.<\/strong> Contextual Introduction.
Body. <\/strong>Positive and negative impact of bank mergers.
Conclusion. <\/strong>Way forward. <\/td><\/tr><\/tbody><\/table>\n\n\n\n

It is said that efficiency of an institution depends upon its size, but it\u2019s not always true. A lot of factors determine efficiency of an institution. Same is applicable to banks. In India Public Sector Banks (PSBs) are fragmented and are under the immense pressure of Non Performing Assets (NPAs). Constant failure of banks to provide credit to both emerging and existing industries has resulted in stagnation. Recently government has merged major banks to transform the, into banks of global scale to reap the benefits of economy of scale. Although there are some positives but there are many intrinsic risk involved with merger of banks which need to be considered.<\/p>\n\n\n\n

Positive\noutcome of bank mergers:<\/strong><\/p>\n\n\n\n

  1. The merger helps in financial inclusion and\nbroadening the geographical reach of the banking operation. Thus will ensure\ninclusive and sustainable growth.<\/li>
  2. With number of PSBs coming down after merger,\ncapital allocation, performance milestones, and monitoring would become easier\nfor the government.<\/li>
  3. Large banks through consolidation of PSBs will\nhave large balance sheets which can meet credit needs of growing Indian\neconomy.<\/li>
  4. It will also build capacity in PSBs to raise\nresources without depending on the state exchequer.<\/li>
  5. Merger leads to availability of a bigger scale\nof expertise and that helps in minimising the scope of inefficiency which is\nmore in small banks. This will help in reducing NPA issues and would help in\nbetter credit services.<\/li>
  6. Synergy of operations and scale of economy in\nthe new entity will result in savings and higher profits.<\/li>
  7. The disparity in wages for bank staff members\nwill get reduced. Service conditions get uniform. Thus it will allow bankers to\nbe motivated to work more efficiently providing banking services at faster and\nefficient pace.<\/li>
  8. Merger sees a bigger capital base and higher\nliquidity and that reduces the government’s burden of recapitalising the public\nsector banks time and again. Thus government can use this public fund for other\ndevelopmental activities.<\/li>
  9. Redundant posts and designations can be\nabolished which will lead to financial savings allowing fiscal savings.<\/li>
  10. The size of each business entity after merger is\nexpected to add strength to the Indian Banking System in general and Public\nSector Banks in particular.<\/li>
  11. In the global market, the Indian banks will gain\ngreater recognition and higher rating. This will attract foreign investment.<\/li><\/ol>\n\n\n\n

    Negative\nfallout of bank merger:<\/strong><\/p>\n\n\n\n

    1. Many banks have a regional audience to cater to\nand merger destroys the idea of decentralisation. This would hamper credit service\nin rural areas and may add to NPAs due to inability to manage from centre.<\/li>
    2. Larger banks might be more vulnerable to global\neconomic crises while the smaller ones can survive. A failure of bank would\nhave bigger and larger impact.<\/li>
    3. Merger would burden stronger banks to cover up\nthe the weakness of inefficient banks. This may lead to inefficiencies and\ndelays.<\/li>
    4. Merger could only give a temporary relief but\nnot real remedies to problems like bad loans and bad governance in public\nsector banks.<\/li>
    5. The weaknesses of the small banks may get\ntransferred to the bigger bank also. This was seen during previous\namalgamations.<\/li>
    6. Mergers may result in clash of different\norganisational cultures. Conflicts will arise in the area of systems and\nprocesses too.<\/li><\/ol>\n\n\n\n

      Bigger banks offer more resilience to the banking sector but overlooking bigger red flags like strong credit appraisal and risk control system would do little help in creating robust banks. Governance of public banks needs to be improved before making any significant change in any emerging architecture. Therefore due focus on ensuring strong foundation of PSBs is important.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Demand of the question Introduction. Contextual Introduction. Body. Positive and negative impact of bank mergers. Conclusion. Way forward. It is said that efficiency of an institution depends upon its size, but it\u2019s not always true. A lot of factors determine efficiency of an institution. Same is applicable to banks. In India Public Sector Banks (PSBs)… Continue reading [Answered] \u201cThe correlation between size and efficiency can not be fully established.\u201d In light of this critically analyse the outcome of Merger of banks.<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49132,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-51995","page","type-page","status-publish","has-post-thumbnail","hentry","entry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/51995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=51995"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/51995\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49132"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=51995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}