Mumbai: State Bank of India chairperson ArundhatiĀ Bhattacharya on Tuesday called for more consolidation among theĀ public sector banks, saying this could reduce their dependenceĀ on government for capital.Ā The statement comes after SBI merged all its fiveĀ subsidiaries and Bharatiya Mahila Bank, which resulted in aĀ massive spike in its provisions and bad loans ratio thatĀ touched double digits in the first consolidated resultsĀ announced earlier this month, though this led to the creationĀ of the 45th largest bank in the world.
The merger of the state-run banks should open up moreĀ capital generation avenues, both internally and from market,Ā for the merged entity, she said.
"From a government point of view, besides an increasedĀ stream of dividends, which forms a part of their non-taxĀ revenue, mergers of state-run banks can also reduce dependenceĀ of the merged bank on government for the future capitalĀ infusion," Ms Bhattacharya said while delivering the 14th Nani AĀ
Palkhivala memorial lecture here this evening.
Merger of public sector banks must increase the roleĀ of internal and market resources and thus reduce government'sĀ dependency, she explained.
Stating that the banking sector is at criticalĀ juncture and is faced with challenges like capital constraintsĀ due to their government ownership, Ms Bhattacharya said, "TheseĀ issues call further consolidation."
From an institutional and investors point of view, theĀ available market float of a merged bank's shares mustĀ appreciate, she said, adding that these considerations have at leastĀ guided the merger decision of SBI.
Ms Bhattacharya said after the merger, SBI has moved to aĀ return on equity (RoE) based budgeting, along with risk basedĀ budgeting in managing its portfolio.
She said that consolidation in the banking sector willĀ lead to greater concentration of payment and settlement flowsĀ as there are fewer parties in the financial sector.
"Now, is this also a hindrance or is this going to beĀ beneficial, but given the cyber security risks that weĀ currently run, probably this could also be beneficial," Ms Bhattacharya said.
However, she warned that operational risks could riseĀ post-merger, as the size of operations enlarge and since theĀ distance between management and operational personnel isĀ greater, the administrative systems become more complex.
"There is a view that exercise of market power byĀ larger merged banks can also alter the monetary transmissionĀ operating through bank lending or borrowers without directĀ access to financial sector," she said, adding, "So mergers mayĀ increase systemic risks and mergers guided only by pureĀ capital adequacy considerations are ill-advised."
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