The idea that consolidation will help resolve the problems confronting the public sector banks in the country, is not correct, said YV Reddy, former Governor of Reserve Bank of India (RBI) on Friday. “The whole idea that the consolidation of banks will solve the problem of public sector banking is not correct. If the problem is structural, if the problem is governance, it does not matter whether banks are large or small,” Reddy said while delivering the Professor DT Lakdawala Memorial Lecture on the topic of “Future of Public Sector Banking.”
The comments from the former RBI Governor come when public sector banks in India are battling with the quantum of stressed assets. “It is not the numbers that matter…. You can consolidate like clubbing centrally sponsored schemes,” said Reddy adding that globally, mergers are yet to be established is as “necessarily the right step”.
According to Reddy, the NPAs confronting public sector banks are more of a “systemic problem.” “Solving the NPA problem currently by recapitalisation, by itself does not solve the problem. Last time it happened in the 1990s and it will happen again after 10 years. Since we grow faster, the NPAs also will accrue faster and we have to be prepared for that,” he said.
Tracing the history of public sector banks to the 1960s, Reddy said, “The origin of public sector banking was political, it was through an ordinance, its evolution has been political and its future will perhaps be determined by political and economic considerations.”