RBI and Finance Ministry at Cross Heads
December 2, 2009
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The RBI is not in favor of the consolidation in banking industry as it feels that right time is still to arrive. They have a valid reason too. In a country, where the process of financial inclusion has not been completed, talking of consolidation does not make a sense. Though they understand that as a country, there exists a problem of having Banks more in numbers, where as there is absence of dominant players in the sector, leaving a few exceptions. But it still hold the view that as a factor, financial inclusion has much weight as compared to bank consolidation.
On the other hand finance ministry has asked the top five public sector banks to come up with the ideas on banking consolidation by the end of current fiscal. They have further been told to submit a detailed roadmap and also do the due diligence of the small banks they could acquire. The finance ministry is of the opinion that there should be 8 to 10 large public sector banks as compared against 27 at present. They have point, as their problem is of governance, overstaffing, fat organizational structure and thus more expenses to be meat from Government Budget. Thus ROI that the Government is generating can not be called satisfactory. Certainly they want to be in the banking sector, but the only point that it wants to make is; that the Government needs to be represented as dominant player and simultaneously the consolidation will also reduce the burden on Government exchequer while efficiency would be boosted.
I have presented both the point of views, now it’s up to you, that whom you choose to align with. Here, a clear conflict exists, but at the same time, both the points have a valid reasons and arguments to support it.