Mergers and recapitalisation of public sector banks are no guarantee of success but we don’t seem to learn from past experiences

Any person dealing with conflict management issues would agree that treating the symptoms seldom cures the cause. The symptoms are often a manifestation of the context, the personalities at play and the immediate trigger. However, the causes continue to fester. This led to a major observation made decades ago on conflict management that if two people cannot agree on something, check the assumptions. After all, logic is often found to support what one already believes to be true.  Before this write-up turns into an exploration of inter-personal dynamics, it is important to realise that the above references are just a bid to answer some of the more basic questions regarding organisations and the economy.

The private sector vs public sector debate has been running in India for decades. Whenever there is a public outcry against privately-run firms, the oft-heard refrain is “nationalise them.” When the trouble is with public sector undertakings (PSUs) the quick solution offered is “privatise them.” Empirical evidence has it that neither of the two has ever solved the basic ailment. The problem remains and the misery continues, though logically there’s always a solution to a problem. Given the Government’s recent decision to merge ten Public Sector Banks (PSBs) into four major entities, one wonders what lies in store for them.

As an instrument, a merger is neither new nor certified as efficacious. In 1993, the New Bank of India was merged with Punjab National Bank (PNB). The merger was nearly as messy as that of Indian Airlines with Air India. If anyone analysed how the solution turned into a mess, it is still a well-kept secret. Nearly 16 years later Vijaya Bank and Dena Bank were merged with Bank of Baroda (BOB). Though there were no fatal flaws with either Vijaya Bank or Dena Bank, nor was BOB the symbol of efficiency and success. Needless to say, nothing spectacular came out of it.

Many will recall how the centenary celebrations of BOB were conspicuous by their lack of visibility. Nobody quite knows how the budgetary allocations for the centenary celebrations were really utilised. Predictably the rewards came — rewards of willingness to bat along. Some of the key figures in this invisible celebration acquired roles in visible and brand-building tasks

The fact remains that there is nothing in the instrumentality of mergers which raises hopes of a turnaround. If the big taking over the small — (read big as a synonym for perceived success and small for perceived failure) — was to become the prescription for organisational success, it’s time for the management researcher and analyst to go home.

The scenario in the banking sector today is very much what it was seven or even three years ago. The Non Performing Assets (NPAs) are impressive, the recovery moves are hackneyed and the major defaulters are still snapping beneath the nose of the powers that be. Lalit Modi’s name has not been heard in the media for nearly a year or so and the almost weekly Vijay Mallya-bashing seems to have lost its cadence. The less famous defaulters are still cosy but a lot of trivial defaulters are being chased with the passion of a hunter desperate for the kill as he has to show results to the people who commissioned him. 

The story of mergers has almost the same template as the story of recapitalisation. The oft-used slogan is of putting the losses behind and strengthening the banking sector’s lending ability. The outlay for recapitalisation is being put at around `70,000 crore. Perhaps it is rooted in the Reserve Bank of India’s (RBI) largesse promised to the Government. However, there’s no recorded history of recapitalisation as an instrument of success for beleaguered PSBs. On the contrary, the willing compliance of officials with any whim of the powers-that-be seems to have its rewards. Recall how after all the talk of how a well-argued theory of demonetisation was messed up, the perpetrators of inefficient operationalisation were systematically rewarded. Understandably their modus operandi of ruining a good broth continues to run its track. But that is another story.

It is truly amazing how an equally obvious action of managerial reform, bank by bank and in every region of the bank and indeed in the working of every branch is not being tried.  Perhaps what is concurrently needed is a managerial reform to accompany what economists over decades have written as their prescription. The fallacy in this, of course, being the belief that the operation of the system is perfect; it is the economic engine which needs replacement of parts. One can only say, Jai Ho!