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In this scenario, if banks are to be made more effective, efficient and comparable with their counterparts functioning abroad, they would need to be more capitalized, automated and technology oriented, even while strengthening their internal operations and systems.
Similarly, in order to make them comparable with their competitors from abroad with regard to the size of their capital and asset base, it would be necessary.

Bank Consolidation assumes significance from the point of view of making Indian banking strong and sound apart from its growth and development to become sustainable.

Benefits Of Consolidation

• As competition heats up, many banks having bigger size, will command more in the market. A bigger bank would have more staff strength, greater geographical reach, more financial resources, more delegated power and less operational and transactional costs due to economies of scale. A bigger financial conglomeration can easily withstand external assaults more effectively.

• Mergers and acquisitions can help banks with complimentary expertise to boost up their combined talents as well as on presenting a vastly improved performance. For instance, a foreign bank with proven merit in treasury operations when merged with a bank with investible surpluses could generate substantial profits.

• The geographical and regional spread would get widened when banks with different strongholds merge. Based on the principles of synergy, the business volume and geographical reach of consolidated entity automatically increases by many folds.

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* Contributed by -
Pritesh Y. Chothani, Ritesh Sud & Rachna Srivastava,
PGDBM 2006,
IMT, Ghaziabad.