Latest News

Economist says Bank Mergers may create Monopoly


➡️ Click here to join our Whatsapp Group

Prasanna Tantri, an economist and professor at the Indian School of Business (ISB), has raised serious concerns about India’s credit system and the government’s push to merge smaller banks into larger entities. Speaking on a podcast hosted by PG Radio, Tantri warned that these measures could negatively impact credit availability and hinder entrepreneurship across the country.

Credit Accessibility Challenges

While acknowledging the government’s success in improving access to savings, Tantri highlighted a glaring gap in addressing access to credit. “The Modi government solved access to savings — but they have not been able to solve access to credit. These two are very different,” he said.

Tantri explained that the dynamics of trust in lending differ significantly from saving. “Access to savings is simpler because the saver has to trust the bank. That’s easy because people trust the government and banks. But access to credit is the reverse — the bank has to trust the borrower. You can’t achieve this through schemes like Mudra loans,” he stated.

Concerns Over Bank Mergers

Tantri expressed his disapproval of the government’s strategy of merging smaller banks to create larger ones, like the State Bank of India (SBI). He argued that large banks are less equipped to meet the unique needs of small businesses. “A large monolithic bank like SBI will not invest time in understanding small businesses and their cash flows. We need smaller, specialized banks that can lend based on cash flow rather than collateral,” he explained.

He stressed the importance of relationship banking, where lenders build trust with borrowers by analyzing their business cash flows instead of relying solely on collateral. “Smaller lenders are better positioned to understand borrowers and provide cash flow-based lending,” Tantri said.

Criticism of Government Schemes

The ISB professor was critical of large-scale government credit schemes, particularly the Mudra loan initiative. He questioned their efficiency and long-term viability. “Credit does not work through government-sponsored schemes. Bankers will find ways to evergreen the loans, and that won’t solve the problem,” he said.

Flawed Collateral Valuation

Tantri also pointed out systemic flaws in the way collateral is valued in India’s banking system. He criticized the assumption that collateral guarantees loan safety. “People think giving Rs 100 as security and Rs 80 as a loan is safe. But in case of default, that Rs 100 collateral often sells for Rs 50 or 40. It’s not as secure as it appears,” he remarked.

Impact of NBFC Closures

He further raised concerns about the government’s policies toward Non-Banking Financial Companies (NBFCs), many of which have faced closures. “We’re shutting down NBFCs and merging banks, making them larger. This reduces access to credit for small businesses and individuals,” he added.

Call for Reform

Tantri warned that the current approach to credit could have long-term consequences for India’s economic growth and innovation. “If we don’t improve our credit infrastructure, we will stifle growth and create monopolies. Entrepreneurship needs easy access to credit to thrive,” he concluded.

5 Comments

  1. What is necessity of bank merger? All banks in India are earning profit and giving best services to all catagory of Indian public. There are so many Government sponsored programs which are being implemented by all public sector banks.There is no requirement of bigggggg banks . So no bank should be merge or privatise in stead all private bank should be nationalised.

  2. yes, the opinion is fir sure welcome. Large banks are not bothered about genuine small loans who are really credit worthy than large corporates and ofter pay upto 36% interest to access credit for not having collateral. Through NBFC which have sourced through Large banks at 8 to 10 %. Now Banks itself can have NBFC for such lending so that they can have a first hand I formation on small loans and then go for merger of NBFC with their respective banks which make things better

  3. as far ss NBFCs, these should be shut down because these charge higher rate of floating interest and particularly these NBFCs do not follow the norms of CIBIL. Because they concern only with profit motto, recovery agents of NBFCs are ‘gundas’ who destroy the respect of a borrower on the road, in case of default of even a single instalment default.
    2. The Finance Ministry has tajen a good and remarkable initiative in case of merger of all associates in SBI. Because now a uniform Bank is in front of a customers and borrowers, they may deposit or withdrawl online or offline from any Branch of SBI. Especially in case of soldiers of employee of BSF because the
    accounts of Military Men were maintained with SBI and where SBI Branch not found, they face a huge problem. Now all accounts of BSF and other soldiers are clubbed in SBI.
    Now I come to the point that if we discuss over MUDRA and MSME loan schemes, we may analyse that through these schemes have strengthen the credit deposit ratio and Bank again has taken splendid initiative after Covid-19 that vegetables and fruit sellers, confectonaries, tea stall holder, and many more others retailers have been benefitted under MSME and MUDRA, apart from that during Covid panedemic the RBI has issued guidelines to the Banks that a separate account with ‘overdue interest’ should be opened so that the Borrowers’ accounts not to be categorised under NPA and CIBIL of the borrowers should not be crashed because as per NPA norms
    ‘one account NPA – all accounts NPA of borrowers.
    These redressal steps had strengthened our Economy and GDP and the position of ‘starvation’ didn’t come across the country.
    Now the RBI has stressed to collect maximum CASA Deposits with purpose to continue maintain all desired ratios in healthy.

    Further, the Banks have started online credit in MSME and MUDRA segment, how can we say that Banks need relationship Banking, our Banks’ relationship with depositirs and borrowers are harmonious and the borrowers’ have built up a grace and grand faith in Banks’ and vis-a-vis.

    In brief we can say firmly that criticism in context of ‘loan on collateral security’ are on right handling because collateral security has a pressure on the borrower.

  4. Bank Merger is one of most important one in India. Because it will turn our NPA ratio. In one side but if we see on other side bank will support for the higher value Customer not for the lower Value Customer. As they are having pressure from top Managment they rush for the higher value not for the lower value. When two level person goes to the bank who they will see first. That what the bank will move if all the bank get merge.

    Instead of merging the bank let all the bank should have their Aadhar as the account number this will be the great idea which will remove duplicate account no. We can see his history where his/her status of him openly even before the people can get his character of the account

    My opinion let’s have aadhar as the account no. For all the bank like our Sim card which is portable

Leave a Reply

Your email address will not be published. Required fields are marked *

Home
Calculators
Menu
Search