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Mergers will divert banks focus on NPA recovery, says Indian Bank MD Kishor Kharat

By:  GK Gupta (ET) , Place:  Chandigarh ,  Update:13 Sep 2017
KOLKATA: Voices against public sector bank mergers are becoming louder. 

After former Reserve Bank of India Governor Raghuram Rajan, here's now a public sector bank boss which has openly aired his views against forced mergers. 

"It's not the right time for mergers," said Indian Bank Managing Director Kishor Kharat. He said that banks would neither get additional capital by way of merger nor there would be any reduction in non-performing assets (NPAs). 

Indian banks in the public sector space are weighed down by steep rise in sticky loans leading to net loss for many lenders and shrinking of capital. About seven of 21 state-run lenders are under Reserve Bank of India's prompt corrective action plan. 

"If merger is pushed (by the government), it will lead to further deterioration of banks' health. Our focus will be diverted," Kharat said in Kolkata at an event organised by Merchants' Chamber of Commerce & Industry. 

The government is keen to reduce the number of public sector banks to 15 from 21 to ensure economies of scale. Finance minister Arun Jaitley said the objective of the merger is to create stronger banks. 

Captains of bigger banks like Bank of BarodaBSE 2.33 %, Canara BankBSE 1.71 % and Punjab National BankBSE 1.66 % are known to have set certain conditions if they are asked to acquire smaller banks to fulfil the government’s agenda. They said that the target banks should be profit-making among other things 
Former RBI Governor Rajan said that banks are already weak and that it would make mergers even more problematic. "You have explain how it is going to be easy to do that. Why this is going to be helpful and not just another distraction which weakens the entire entity," he had said in a recent interview to ET. 

Kharat said that weak banks need recapitalisation and NPA recovery as a priority. "If money from the top 100 NPA accounts can be recovered, a lot of stress will be eased." 

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