Copping out on Privatisation

The recent bank merger between Bank of Baroda, Vijaya Bank, and Dena Bank is essentially a move of cowardice, and not the bold reformist step it is touted to be. The original plan (for reforming the banking sector) was to have just 6 public sector banks, and while Modi has reduced the number from 26 to 19, there’s still a far way to go. Further, the plan was not to achieve the reduction in numbers by merging all of the public sector banks into 6 mega banks that are still in government control, but to privatise them eventually. However, the traditional governmental dislike for privatisation and the lack of political will in an election year resulted in this sub-optimal solution of merged banks.

The merged entity is set to become the third largest Indian bank, however the size is hardly important. In fact, it would actually deter any real progress in reforming the banking sector. Another move of cowardice was in giving the assurance that no jobs would be lost due to merger. Thus, the banks cannot really cut cost and achieve economies of scale in this aspect.

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