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India banking: The power of the micro

The problem with India’s state bank mergers.


Bank of Baroda

September brought a sign of progress in India’s ambitions to transform its debt-addled state-owned banking sector. We are a long way from the endgame of six state banks prime minister Narendra Modi once mentioned – there are still more than 20 of them in fact – but the recommended merger of Bank of Baroda, Vijaya Bank and Dena Bank is at least a step in the right direction.

This is what the market wanted: fewer banks, resolving bad loans through the new bankruptcy court process, recapitalized and ready to start lending again. But there is one nagging doubt about the whole process. A culture is emerging where the dismal are rewarded and the able are impeded.


Although the recommendation, from a panel chaired by finance minister Arun Jaitley, is billed as a three-sided merger, what is really happening here is that Bank of Baroda is acquiring the other two.

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