Narishimam committe II of 1998 formed for banking sector reform said that – Indian banking sector should have 4 tier structure (1) 3-4 banks who can compete at international level (2) Bank to compete at national level (3) compete at regional level (4) compete at rural area. And also said that strong bank should be merged with strong bank. But his recommendation where not considered that time.
Recently three public sector bank Dena Bank, Vijaya Bank , and Bank of Baroda is merged to become third largest public sector bank in india after SBI and PnB. Though it is called merger. It is termede as amalgamation . Amalgamation is process in which two or more company combine to form completely new entity.
Non performing assets is a major concern for merger .There are also other factor for merger such as merger will reduce cost and performance will increase. It will eliminate competition . It will increase market share. Reduce NPA problems. Merger will robust banking system with global present help in solving bad loans. Financial inclusion can be made easily. Volume of inter bank transaction will decrease .Risk taking ability will increase. Prices will go down and quality of product delivered will increase.
Though merger has many benefits it has to face challenges also .Identity is lost of merged bank. Weakness of weak bank is transferred to strong banks. Different banks have different working culture and merging these different culture is uphill task. Public has to face problems .
Force merger should be avoided and prudent merger of bank necessary to meet challenges in banking sector.
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