The merger of public sector banks(PSBs)is once again on the government’s agenda. Minister of State for Finance Shiv Pratap Shukla just recently said that the federal government has asked the Reserve Bank of India (RBI) to suggest possible mix of PSB mergers. Here are 4 approaches to obtain the very best results.Merger Based upon Geography PSBs are spread across the nation with some focusing on a particular location. Corporation Bank and Canara Bank are known for a much better network in the South while Punjab National Bank is more prominent in the North. Merger of banks based on geography will result in lesser disruption in terms of rationalisation of branches and people.Almost half of the PSBs are suffering at the bottom in terms of monetary efficiency. Close to a dozen are under the RBI’s timely corrective action( PCA)structure. These banks have seen a massive disintegration in their capital levels, net worth and degeneration of asset quality. The merger of weak banks can be done once the bad assets are out of the system. This will likewise assist in having one or two large entities with much better governance and a professional management to make a brand-new start.Merger to Develop Specific niche Banks In a new emerging banking model, there are currently niche gamers like payment banks(retail payments
), Small Financing Banks
(doing micro loans), complete scale banks(Axis or an HDFC Bank )and universal banks (ICICI Bank or a Kotak Bank). There is a space for producing particular specific niche entities like an SME focused bank or an MSME focused bank. This can be achieved by merging few PSBS with a new mandate to cover a particular sector.Merger to create large banks There is a view that the federal government need to strengthen the hands of banks like Bank of Baroda to create
few four-five large banks
. SBI has actually recently combined 5 of its partners to create a much bigger entity in the market. It is high time the government ought to take a look at creating a few big banks with a minimum of Rs 10-15 lakh crore of balance sheet size.