T T Ram Mohan’s analysis of IDFC Bank’s merger with non-banking finance company Shriram City Union Finance (SCUF) in his article, “A none too exciting merger” (July 18), brings to the fore some important issues.
First, the IDFC Bank management’s confession that “organic growth is not a realistic option for the bank” puts paid to the Reserve Bank of India’s (RBI) claims of issuing new banking licences for expanding banking services in the country. This, despite the RBI diluting the definition of a bank branch to a banking outlet that can even be exclusively operated by business correspondents/banking agents.
Second, if we accept that NBFCs like SCUF are providing important service by financing informal sector enterprises, such mergers are likely to extinguish important sources of finance, which banks generally shun due to reasons of size or reach.
Third, as correctly indicated, IDFC Bank was a respected name in infrastructure finance (and even had excellent sector knowledge). Would it be too early for IDFC Bank to turn around its core competencies?
Fourth, the present management of IDFC is making tall claims and trumpeting the merger. Is it not fair for shareholders that a new management guides the destiny of this bank? Any missteps may adversely affect the merged entity in its infancy.
Also, the business media has a responsibility to scrutinise such mergers.
Y P Issar Karnal
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