Saturday 7 January 2017

The cost of delay

The origin of the idea of merger of associate banks with parent SBI is perhaps lies at the doorstep of government. Left to SBI, it would not have ventured into this self defeating and the most unwarranted exercise. Clearly, this exercise is aimed NOT at strengthening SBI but rescuing the sinking associate banks with the burden of huge and unacceptable levels of NPAs. SBI does not need any more increase in its size as it is already nearing a stage that it is unwieldy. But the reason government advancing for merger is - to have a few strong banks to take on the competition. This reason doesn't cut ice with anybody. The real reason which is most probable could be to obviate itself from the burden of capitalising weak banks perennially.

The loser in this gambling is SBI and the gainer is government and the associate banks. As it is, SBI is struggling to manage its own size and weight. Post merger, it could be rubbing salt into the wound for SBI. Parent SBI is already saddled itself with unprecedented levels of NPAs and to make matters still worse the NPAs of associate banks are even more alarming. That's why I called the merger self defeating for SBI.

With the news of merger being in air for around a year, the associate banks have started slow peddling of the loaning activities for over six months till now. They have almost stopped lending for a quarter now and busy balancing books and cleansing their assets of NPAs anticipating their merger into SBI. And it is now official that the merger is being delayed/pushed to next quarter ie, next fiscal. Even in the first quarter of next fiscal it unlikely because of its preoccupation with balance sheet activities. That means, it may stretch to Sept quarter. The cost of this delay could be enormous in the sense that SBI is inheriting a weak and truncated asset books of its associates.

- The cost of the delay (of merger) therefore is huge for SBI though it is unintended.

If you have any comments, please post it in the blog.

K.N.Krishnan.