Bank mergers could lead to too-big-to-fail entities: Chidambaram

Union Finance Minister P. Chidambaram has favoured mergers in the banking industry so that India can have two-three global sized banks.

Addressing the Annual Day function of the Competition Commission of India (CCI) here yesterday, he underscored the need for two or three world-size banks in an economy that is poised to become one among the five largest in the world.

"Are our regulators well positioned to evaluate the consequences to competition in different sub-markets and across regulatory jurisdictions? Is there a role for the CCI here? Finally, we have seen bank mergers lead to too-big-to-fail entities. What constitutes a merger too far? How do the relative merits of prudential regulation and competition regulation weigh? We have not confronted these issues as yet in India, but undoubtedly will have to in the not too distant future, and will have to prepare for them," he said.

He further highlighted that some public sector banks among the 26 public sector banks may be better off merging.

Chidambaram further appreciated CCI for bringing about a transformational change, and providing much-needed oversight of a liberal and open economy in a short span of 4 years.

The finance Minister also highlighted that the most fascinating development of the last 22 years is the number of unknown entrepreneurs who have built huge and successful businesses and taken over as leaders in their fields. Hence, the need for an effective Competition Commission that favours none and spares none.

He said there was a need to focus on five key issues for competition policy. These are: mergers and acquisitions, natural monopolies, regulatory capture, governance biases towards Public Sector Enterprises, and predatory behaviour.

Chidambaram cited the example of the Telecom sector that has thrived with competition. Indian call rates are amongst the cheapest in the world, as Indian firms have evolved a uniquely Indian business model.

Chidambaram further advised CCI to keep an eye open for any anti-competitive behavoiur behaviour and ensuring that the public is well served. Regulating the sectoral regulator in these matters, while difficult and fraught with legal difficulties, is an essential role the Competition Commission may have to play.

He also advocated the need to bring public sector enterprises under scrutiny for anti-competitive practices considering that India now has an open economy, where the private sector has to compete with the public sector. He said that a key issue for any Competition Authority is to prevent predatory.