Will the Merger of Indian Banks Boost the Economy?


What was the Plan?
Now, you may be asking whether the government had a plan to merge banks for a long time. The answer is yes, but it may surprise you. You see, the genesis of the idea to merge PSBs is from the time of M. Narshimham Committee Report of 1991. It was appointed to oversee, review and report on the functioning of commercial banks along with other financial institutions. This was done to improve their functioning through suggestion of better models. The key recommendation of the committee was to establish a 4-tiered hierarchy for the Indian Banking structure. This was to contain three or even four large banks such as SBI at the top, 10 national banks with branches around the country, local banks to cater to the various regions, and lastly the rural banks for financing agriculture.

Will the Plan Work?

Now, the question is whether the merger of all these banks bode well for the customers. After all, it is for them, and for the bank’s ownefficiency the merger took place, right? To know that, here’s something that needs to be understood first. Banks have two ways of looking at customers: liabilities and assets. The ones who borrow from banks are its assets, since from them the bank shall earn through interest. The customers who only deposit in their bank are liabilities because the banks need to pay them interest. For the depositors, there shall be problems like reduction of bank ATMs and branches. However, they should not have a problem because of mobile banking apps and other digital technology.

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