Page 244 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 14: Core Banking Solution

prevent fiscal crises from spreading, the IMF and lender governments organize financial bailouts Notes
that are underwritten by the taxpayers of both the LICs and the wealthier countries like the
United States.
Although the perils and problems linked with deregulated fiscal flows are increasingly evident,
several multilateral institutions—including the IMF, the World Trade Organization (WTO), and
the Organization for Economic Cooperation and Development (OECD)—are currently
negotiating new agreements that would open more markets to MNBs on an even broader scale
than previous regional agreements, such as the North American Free Trade Agreement (NAFTA)
and the Asia Pacific Economic Cooperation (APEC) forum. The explicit intention of the suggested
rules is to create legal, political, and economic frameworks that would make it almost impossible
for governments to impose controls on international capital. For example, the IMF aims to
improve its articles so that member countries would need to obtain permission from the IMF to
bring in capital controls; the WTO is negotiating a new agreement called the General Agreement
on Trade in Services (GATS) to liberalize service sectors, including banking; and the OECD is
negotiating a Multilateral Agreement on Investment (MAI), which would substantially increase
the rights of international lenders and multinational banks.

Big Fish

The biggest whale in the Indian banking waters, State Bank of India, is considered to be small fry
in the global banking ocean. Despite cornering about 25 per cent of the banking business in the
country, SBI is ranked 60th in the list of Top 1000 Banks in the world by The Banker in July 2012.
Ideally, India should have 4 or 5 global-scale banks.

Recently, the government asked SBI to do an elaborate cost-benefit analysis of its merger with
its five associate banks. The bank not facing any tangible problem in merging two of its
subsidiaries earlier might have worked as a trigger. Once all its subsidiaries are merged with it,
it would be among the top 10 banks in the world in terms of various parameters.
Grapevine has it that recently the Ministry of Finance called the chairmen of SBI and BoI on the
issue of merger and if this were to happen, SBI will become the fifth or sixth largest bank in the
world. With the arrival of new century, Indian corporates are spreading their grip by acquiring
companies abroad.

Notes For funding cross-country acquisitions Indian banks should acquire size and
sophistication. Thus, there is no substitute for consolidation in PSU banks.

Self Assessment

Fill in the blanks:

22. In India, in legal parlance, mergers are called as .......................................
23. The company which acquires the assets and liabilities of the target company is referred to
as .......................................

24. In the process of merger, competition is reduced because .......................................

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