Squeezed by size and competition, a similar fate could await banks that are small or are uncompetitive, where there’s a lot of duplication of products and services without any value-addition to the customer. The set of public sector banks, which account for 75 per cent of banking assets, are ripe for mergers and acquisitions, and hold the key for any meaningful change in the dynamics of the banking sector.

Barring SBI, there’s not much to distinguish one public sector bank from another. It’s common to find 10 public sector banks in an area, all offering an identical banking proposition. Says Ghosh: “Indian customers will be served better if a large number of those become big entities, where cost can be shrunk without losing the product base.” Consolidation will lead to more efficient use of resources — branches, ATMs, employees, technology — enabling them to offer cheaper banking services.

Compared to their smaller peers, big banks can allocate more towards technology, the benefits of which are being able to service more customers and reach the desired economies of scale. In some of the new, large private sector banks, as much as 75 per cent of banking transactions are now conducted through the automated route (ATMs, Internet banking and call centres), compared to 20 per cent about four years ago.

The common consensus among banking sector experts is that M&As are desirable, even inevitable. But since the Left doesn’t think the same way, the sense of urgency is missing in the set of banks that need it the most: public sector banks. Since any merger moves are likely to be scuttled by employee unions and the Left, the best public sector banks are able to do today is form loose alliances of the kind struck by Corporation Bank,

... contd.