Increased Non-performing Assets in Indian Banks leading to Consolidation as Remedy: A Study of Strategic Advantage and Compromise

Author: Saptarshi Ray

Abstract:
Indian Banking Sector since inception has gone through a series of corporate restructuring. Starting from the age of Presidency Banks, the banking sector has taken up consolidation as a strategic move to enhance their competitiveness in the global arena. History reveals that India?s Largest Bank, State Bank of India, is a product of mergers of the Presidency Banks. Post-nationalisation phase projects Reserve Bank of India (RBI) as a vital role player in the process of the mergers of the Indian Banks. RBI, being the apex bank of the country has come up with several directives forcing a strong bank to take-over the weaker banks which eventually tantamount to acquisition of Non-performing Assets (NPAs). This paper endeavours to study the probable synergies arising out of the consolidations and how it has been strategically different from the mergers and acquisitions taking place globally. In the due course of establishing such fact, the paper has gone through an international case-study relating to takeover of ABN-AMRO Bank by the Royal Bank of Scotland and how the focus of such merger has been different from the Indian consolidations taking place. Focussing towards the Indian context, the paper has taken up few case-studies relating to the Indian banks to show how the Indian banks has undertaken corporate restructuring only to shift the burden of NPAs from a weaker bank to a giant. This strategy might not prove to be sustainable in future because the loan recovery system and the Debt Recovery Tribunals have already proved its incompetence in the past. Moreover, the Indian banking giants are also suffering from high NPA accumulation. Under the above situation, this paper is an effort to prove that the consolidations taking place in the Indian Banking Industry might be a short-term remedy for the weaker banks to get out of their failure but cannot assure a future growth in the industry.

Keywords:Indian Banking Industry, Non-performing Assets, Consolidation, Merger & Acquisition, Debt Recovery Tribunals

DOI:

International Journal of Trade & Commerce (Vol: 1 Issue:2)