Credit rating agency ICRA has said that mergers are one of the best options for growth of Indian banks but warned that it may not solve some "basic problems" of Indian banks plagued by inferior asset quality, poor management and lack of autonomy.
"As in the global industry, the Indian banking sector has been witnessing a spate of mergers. The concept of mergers is not new to India's PSU banks. It has been on the reforms agenda since 1991 when the Narasimham Committee chalked out a blue-print for banking sector reforms," ICRA said in a report.
The report assumes importance in the wake of the proposed merger of troubled private player Global Trust Bank with public sector Oriental Bank of Commerce.
ICRA listed out a spate of mergers since 1991 -- New Bank of India with PNB in 1993, Bank of Karad with Bank of India in 1994, Times Bank with HDFC Bank in 2000, Bank of Madura with ICICI Bank in 2001, ICICI's reverse merger with ICICI Bank in 2002, Benaras State Bank with Bank of Baroda in 2003 and Nedungadi Bank with PNB in 2003.
"M&As remain one of the best options by which banks can grow, consolidate, achieve scale of economy and acquire new markets," ICRA said.
It, however, warned M&As do not solve the basic problems of banks except helping them in attaining scale of economy."M&As are no panacea for poor asset quality, poor management, indifference to technology upgradation and lack of functional autonomy and operational flexibility. The scope of mergers is also constrained by the public ownership of banks and would depend on RBI and government's views on the desirability of mergers," ICRA said.