sbi’s merging with associates will only up the miseries

when do two forces combine? when one has something worthy to lend to the other party and when their working cohesively can bring economies of scale. in the merger of state bank of india with its associate banks, the concept of economies of scale has been grossly misconstrued. this merger is set to be one of the most ill-conceived ideas in the banking history of the country.

in this world where financial experts and consultants come from top business schools, basics of any concept are customarily overlooked.

the only intention of decision-makers seems to be their greed to let sbi enter the coveted list of banks in terms of assets. they may have achieved this goal, but if only value of assets determined viability of any enterprise, market forces would have compelled many competitors to join forces; this, however, isn’t prudent economics.

what is the role of a bank? what is banking? in simple terms, borrowing from those who have surplus and lending to those who are in deficit is banking, and this basic fact is ignored when the top management takes decisions like this one. sbi has its own set of savers and borrowers, so do the associate banks. all are reeling under bad assets and no one has a clear strategy to tackle this issue that has wiped out confidence from indian banking landscape.

if the government had to jump into the problem to find a solution, that in first place was created by imprudent banking decisions, it only reflects that the top management has failed.

and what will this merger lead to? while individual banks were working separately and with specialization in conducting their business, merger is set to make all banks work under same guidelines (thus upping the risk factor), and the point is that the largest entity, the sbi, itself is under stress.

there wasn’t any advantage, be it technological prowess or managerial capability, that could have resulted in synergy. this one entity may, on shallow ground, have elevated the stature of the chairperson of sbi, it will only prove to be a burden. with dysfunctional atms, poor customer handling, sub-standard technology, sbi has nothing that can make its associate banks more powerful after this merger, rationales have been completely disregarded.

this exercise could only make headlines, in terms of creating value, it is a total disaster.