Three Sluggish Elephants Don’t Make One Agile Leopard

Three Sluggish Elephants Don’t Make One Agile Leopard

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Three Sluggish Elephants Don’t Make One Agile Leopard
By proposing to merge three banks, the Government has managed to save the bankrupt Dena Bank. Just a few days ago,  LIC bailed out the financially crippled IDBI Bank. Not too far back in the past, State Bank of India merged its subsidiaries to save some of them from extinction. Bank of Baroda was the only “big” bank left to acquire another, Punjab National Bank is grappling with its internal mess. Presumably Bank of Baroda was reluctant to take over the bleeding Dena Bank with a workforce of 15,000 and a massive pile-up of NPA’s, and it refused to accept the proposal. The Government had to sweeten the deal for Bank of Baroda by adding the cash-rich Vijaya Bank (Vijaya Bank is the only bank that paid dividends to the government last year) , making the latter the sacrificial goat, thus creating the three-way merger and the formation of what is being mockingly being called Vijay Denanath Baroda Bank.
This consolidation saves the near defunct Dena Bank and reduces the number of Public Sector Banks to 19. Further consolidation is likely to be announced soon to salvage other sick banks. This move, the government claims, will create global sized strong banks. This is far from being true. Can the merger of three crippled entities create an agile one? Numbers don’t add up that way, Mr. Finance Minister, and you are more likely to create an unmanageable giant of inefficiency, instead of creating synergies between the merged units. As long as the banks will be run like public sector undertakings by incompetent babus, larger banks would only mean larger inefficiencies. Synergy occurs when each constituent unit has a distinct strength and the sum total of such strengths creates a whole which is larger than the sum of its parts. When a blind man, a lame man, and a deaf man, decide to collaborate, they make a whole which is bigger than their individual personalities. That is synergy. But when, all three men are crippled in the same organ, it amplifies the inefficiency, making the merged entity a giant with deficiency multiplied three times.
It is time for the government to realise that commercial banks are, well, commercial banks, and they should be allowed to run as such. Banks need professional management, and more importantly, banks need to free themselves of the political compulsions and corruptions. Unless that is done, we will continue to create more Mallyas and Choksis and Niravs, and the government will keep pouring the tax payers money in the NPA hotchpotch.

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