Merger of State Banks are not going to solve Governance issue- Reddy

Recently on mergers of the state Bank, the former Reserve Bank Of India Governer YV Reddy said that these mergers would not solve the governance issue. And it has been a global experience that mergers are found to be ineffective in such case.

At 6th SBI Banking and economic conclave he said “I won’t call it a reform, it’s a commercial decision based on synergy, global experience in the banking system shows that only half of the bank mergers have been successful,”

“If the purpose is governance, it will not be solved by merging two banks. However, if it’s for economies of scale namely operational efficiency it could happen. Mergers could be done by the respective boards as well by analyzing synergies, it need not necessarily be through the government.”

For collapse of Infrastructure financer IL&FS he said “In my view the IL&FS problem reflects the risk-assessment capabilities of large institutions that had exposure to that,” Reddy said. “SBI, LIC should examine this point how did they miss it? It is not a system wide liquidity problem if you ask me it may be a contagion. In a way if the government had to virtually take over IL&FS and run its affairs, it is an indication that the government has recognised it as some sort of a solvency problem.”

Government has till now merged state banks into 4 banks in total with many other changes. Reddy somehow is not agreed with changes as he thinks it would not fulfill the desired result.