Letters: Don't rush to conclusions

The editorial, “Mergers do not help” (May 23), projects the current state of the State Bank of India (SBI) after the merger. The five merged entities have cast a heavy blow to the SBI, making it post losses. 

Immediately after a merger, the outcome would be the arithmetical sum of the items in the entities. Except absorption of balance sheet, no strategy could be so far implemented. Adversities of the merged entities cannot disappear with the merger; these get added to the absorbing entity. Hence, there is no surprise in the numbers rolled out by the SBI.

The actual journey of a merger starts after the merger to derive its synergy. Action needs to be triggered to merge branches, trim controlling offices and weed out surplus staff, if any, or plan their redeployment. Identifying core talent to drive enlarged/restructured lines of business, creating action hubs to tackle non-performing assets and planning to weed out assets carrying higher risk weights to improve capital adequacy ratio can be some of the action in the pipeline. 

Unless the whole process of a merger is completed, it might be too early to conclude that it offers no solution. Capital infusion can only be viable; it is not capital infusion of merger. We may have to examine mergers and capital infusion to restore the risk appetite of state-owned banks.

Therefore, conclusions cannot be hastened at this stage. More action has to follow mergers for anyone to gauge its impact. At least a medium term of three years is needed to assess the impact of a merger.

K Srinivasa Rao   Noida

Letters can be mailed, faxed or e-mailed to: 

The Editor, Business Standard

Nehru House, 4 Bahadur Shah Zafar Marg 

New Delhi 110 002 

Fax: (011) 23720201  ·  E-mail: letters@bsmail.in

All letters must have a postal address and telephone number