Important Topics for UPSC 2017 Exams (Banks Merger)

What is meant by the merger of banks?

It means that 2 or more banks are combined to form a larger bank to address common problems and increase resources to lend larger loan amounts.

Why current merger of SBI and its associates?

It will make SBI one among 50 global banks.
SBI will be able to lend in abroad projects.
It is expected to improve the efficiency and service delivery of Public Sector Banks.
The charges on cross-bank ATM usage would reduce considerably.
Reduce NPAs of associate banks and it will not reflect much into SBI balance sheet.
To have strong banks than the numerically large number of banks.
Customers of smaller banks will get access to wider use of financial instruments like mutual funds and insurance products, as offered by Big Banks.
The sharing of Infrastructure will give customers a wider use of the ATM network.

What are some Disadvantages of this Merger?

Smaller banks will tend to lose local characteristics, which customers preferred because of cultural affinity
A few large inter-linked banks expose the broader economy to greater financial risks.
Human resource issues can be difficult to handle; career growth of senior management and other workers could become problematic.

Conclusion

The merger of banks is a great idea however other legal complications arising out of it must be addressed in inclusive and sustainable manner. Further big banks will lead to the global presence of SBI thereby spreading India’s lending footprint as bank diplomacy.