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Banks mergers a good move, says Vinod Rai

FE Bureau

Former comptroller and Auditor General (CAG) and chairman of Banks Board Bureau (BBB) Vinod Rai on Tuesday said the government's decision last month to merge 10 state-run banks to create four larger and stronger entities was a "good move" that would lead to greater synergy among them and better governance.

Stressing that the BBB under him was consulted on consolidation and that the government didn't just act on its own, Rai said: "We had suggested two models. First, merge large banks - say, for instance, Bank of India and Union Bank - and create an entity which is strong."

He added: "Then you can merge small banks like Bank of Maharashtra or Vijaya Bank etc. The second model was (to merge) banks which were regional."

Rai was speaking at the Indian Express Group’s Idea Exchange Programme.

Conceding that getting rid of extra staff to create a linear structure and fully reap the benefits of a merger wasn’t possible in the public sector, Rai, however, asserted that once employees departed on their own, the staff cost of the amalgamated entities would fall. A "critical mass is required" so that the broader entities would have bigger balance sheets to recruit experts from the markets, lend to large infrastructure projects and better manage their human resources, he added.

Rai, best known for overseeing the audits for the 2G spectrum and coal allocation scams during the UPA rule, has come up with a new book titled, Rethinking Good Governance: Holding to Account India's Public Institutions.

Asked if the fears of the three Cs - CBI, CVC and the courts - have stymied the decision-making of public sector bankers, the former CAG replied in the negative. The slowdown, he added, was perhaps due to more stringent appraisal process for bankers now than before. Rai -- who served as the banking secretary for a while in the UPA era when "indiscriminate lending" took place, leading to the bad loan crisis — asserted that during his time no banker was asked to resort to "sub-prime lending".

On drawing his attention to the fact that the National Highway Authority of India (NHAI) never set aside a mandatory sum half-yearly, meant for liquidating long-term loans from its income in reserve fund despite repeated prodding from the CAG, Rai said: "Parliament has not been successful in enforcing its accountability over the executive. Why? Because of the committee system (such as the Public Accounts Committee). Committee system has to be improved."