Yesterday,
Finance Minister Arun Jaitley announced merger of three public sector banks -
Bank of Baroda, Vijaya Bank and Dena Bank. You can read about it
here: https://www.bloombergquint.com/business/government-announces-merger-of-bank-of-baroda-dena-bank-vijaya-bank
Some
people failed to understand how NPA situation will improve due to the merger. I
can explain it as follows:
All
banks have NPAs but at different level. Average NPA% of the new (merged) bank
would be much healthier to make it competitive. They said on TV last evening
that it will be around 5 point something. Current NPA% of Dena Bank is as high
as 22%. So benefit is due to "averaging". Not too difficult to
understand, right?
Secondly,
as Mr. Jaitley said, the criteria used was: two healthy and strong banks would
be merged with a third weak bank so that the merged entity can digest this
third small one without hiccups. In current case, this was Dena Bank. This is
called good strategic planning.
People
should be surprised, how Government of India is thinking of better strategies
than Private companies and best consulting firms can think of! This is called
governance with a difference!
-
Rahul Tiwary
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