Kotak- Ing Bank Vysya merger

Shareholders have reportedly approved the Ing Bank Vysya merger. Ing Vysya Bank unions are still seeking assurance that no jobs will be lost.

There are important lessons to be drawn from the merger. One, new private banks, not foreign banks, are the big winners in the post-reform period. Public sector bank share will continue to decline but the loss will be to new private banks, not so much to foreign banks. Two, branches are crucial to cost competitiveness and growth in Indian banking- no new private bank would like less than a 1000 branches. Thirdly, for public sector banks, the branch network needs to be larger as they must rely mainly in interest income to grow profit- their ability to generate fee income is not as good as that of private banks.

It follows that PSBs with less than, say, 2000 branches are vulnerable. We are better off selling of such PSBs instead of merging them with other PSBs- mergers in today's context will weaken stronger banks. More in my EPW article, Merger they wrote.