Today Listening The news of Merger of 5 SBI Associate banks with SBI.
Frankly speaking, I was thinking that why there are 5 different state banks when we called them SBI group. So as per me, it is Positive thing for bank.
Banking is all about managing Risk. Return on asset and availability of Funds and efficient use of funds are important factor in banking. As currently we have so many banks and most of them are relatively Small, The cost of Fund and infusion of Fund is Issue with them.
Like Other companies, Banks also grow and become bigger. Bigger banks have some benefit and some Risk with them, as what they call ‘Too Big to Fail’. There is a discussion going on in US about Big BANKS and in India we are talking about Making big BANKS. There are some benefit of size and and some risk also attached with them. Nest is something I found on Wall Street Journal.
The preoccupation with banks’ size is well-founded. The havoc when big banks fail, and the perception the government won’t let that happen, enables them to borrow cheaply and grow still larger.
Yet as in technology, size confers unique benefits in banking: economies of scale in technology, branding and risk management; network effects that attract customers; and broad geographic and sectoral diversity. If regulators ignore these attributes while dwelling solely on the danger of size, they risk leaving the economy worse off, not better.
Some time, some banks become so big that if they fail, the effects are visible all over the world. I think Lehman Brothers proved that thing. So it is some time duty of Govt to save them. History of Finance told us that not even with banks but with some car manufacturers also, Govt need to run behind them. General Motors is best example.
But in India it is something different. SBI is not private but Govt holding. Like any other Govt, they also need to rescue them. SBI is like Govt of India’s Finance arm to spend for development. But still it is not that much big. SBI is Lender to the first resort, they also have some special duty, and so many issues. I think it was necessary for Govt to take the STEP. As BMB is also expected to merge, I am expecting that the outcome is Good from this.