MERGER OF GRAMIN BANKS: THE BEGINNING

Gramin banks in India have come a long way since 1975. Passing through critical periods, when their very survival was doubtful, they have marched to a stage of revival. Though some of the perpetually sick among them still remain, majority of them have proved to be financially viable. Recent decision of the Government of India permitting the merger of some gramin banks - merging them with other gramin banks sponsored by the same public sector bank, at state-level - is a step in the right direction, though partial. Mergers are being made in phases in selected states, starting in September 2005. Full details of the mergers, however, are not readily available in any single source, not even in the website of the Reserve Bank of India, at the time of writing this article.

It is indeed surprising to note that the mergers of 84 gramin banks silently accomplished by 13 sponsoring banks in as many as 11 states have gone unnoticed by the mass media. Piecing together the information available from the press releases and those available from some websites, it is observed that out of 196 gramin banks, 84 have been merged to form 25 new banks. As a result, their number has come down to 137.

This is only a partial consolidation of selected gramin banks. In the absence of official listing, the information gathered may be incomplete. List of the amalgamated new gramin banks is given in table1.

The Amalgamated Banks:

The process of merger of gramin banks has been initiated, implicitly with the objective of enlarging the operational areas of these banks. As some of them were confined to one or two districts, the geographic limitation was construed as an hindrance to their growth. There are however, a few conspicuous exceptions, where the gramin banks operating in single districts have proved to be viable. (Example: Varada Gramin Bank in Uttara Kannada district or Netravati Gramin Bank in Dakshina Kannada district, both in Karnataka). There are two cases in Bihar and Uttar Pradesh, where as many as 7 gramin banks are merged to form bigger and hopefully stronger banks.

The merger of 4 gramin banks by United Bank of India in Assam into one has enhanced considerably the size and the operational area of the new bank. Operating from Guwahati, Assam Gramin Bank, would have 354 branches with a total business of Rs.2500 crore. It would be operating in 25 out of the 27 districts in the state. The other 2 districts are serviced by the gramin bank sponsored by State Bank of India.

In Karnataka, where rural banking has a strong base, the merger implemented by Syndicate Bank has resulted in the emergence of one of the biggest gramin banks in the country. Karnataka Vikas Grameena Bank, an amalgam of 4 banks, has a network of 387 branches; deposits of Rs. 1917 crore and advances of Rs. 1748 crore. According to the Bank's press release, its net profit is expected to be Rs.70 crore during FY 2006.

In the same state, Canara Bank also has merged 4 gramin banks to form Pragathi Grameena Bank. This amalgamated bank would have a deposit base of Rs.1339 crore and advances of Rs.1298 crore. Covering 6 districts, its branches are 349.

In many cases, the banks merged are operating in contiguous districts. Their operations are within a single language zone, enabling the staff to maintain intimate links with the rural borrowers. Symbiotic relationships built by the rural branch staff with the rural society over the last three decades could be continued through these geographic mergers. Dislocation of the field staff would be minimum, as they are not required to be transplanted in unfamiliar grounds in different parts of the country.

Mergers in Different States:

Merger of gramin banks in Bihar has totally changed their operational sizes, some of which have very poor track record. Out of 16 gramin banks, 15 are now merged. In one case, as many as 7 banks are merged into one. The number of banks has come down to 5.

Gujarat is one of the few states, where all the existing gramin banks are re-organised; their number has come down to 3 from 9. Rajasthan has 14 gramin banks and their number is expected to be reduced to 6 through mergers.

In Haryana, the number of gramin banks has come down to 2 after the amalgamation of 3 banks. The single bank left untouched is Gurgaon Gramin Bank, sponsored by Syndicate Bank. It is one of the financially sound gramin banks since its inception. Operating in the national capital region, it has123 branches and handles a total business of Rs.1290 crore. The net profit earned is Rs.28 crore in FY2005. It can be a stand-alone bank.

Kalinga Gramya Bank comes into being in Orissa with the merger of 2 gramin banks of UCO Bank. This amalgamation would provide a new lease of life to Balasore Gramya Bank, which has been financially weak since its inception. The state has 7 more gramin banks, which are financially not very strong. The 4 sponsoring banks have to decide about the future shape of these banks.

Uttar Pradesh, which has one of the largest number of gramin banks (36) has witnessed only a partial merger of 23 banks into 7 banks. With this re-organisation, the state would continue to have 20 gramin banks (7 new banks and 13 old banks). A good number of which are yet to establish their viability. One prominent exception is that of Prathama Bank, the first gramin bank in India sponsored by Syndicate Bank. It has carved out for itself a place of pride among the gramin banks, proving to be a successful rural credit agency. In the process of mergers, it may remain untouched. Its fundamentals are stronger than even a couple of private sector banks of the older generation.

The schemes of mergers initiated by the Government of India, the major shareholder of gramin banks, are yet to cover the other states. Conspicuous among them is Madhya Pradesh having 19 gramin banks, some of which require immediate restructuring for their survival. State Bank of India has sponsored 30 gramin banks in different states. But according to the information available, it has merged only two gramin banks so far. Central Bank of India is the other bank, which has sponsored 23 gramin banks and only 10 among them have been merged.

Looking Ahead:

The process of mergers initiated thus far appears to be bordering on an ad hoc arrangement. As the state governments are minor shareholders in all the gramin banks, their consent is required for the mergers. It is not clear whether there is reluctance on the part of some states (Madhya Pradesh and West Bengal?). The sponsoring banks, however, have no choice, when the decision for merger is taken by the Government of India. But then, there are the instances of initiating the process sporadically in a few states (Maharashtra and Orissa), amalgamating a few and leaving some.

There are the unresolved cases of the single gramin banks covering the entire states like Arunachala Pradesh, Manipur, Meghalaya, Mizoram Nagaland and Tripura. As their operational limitations are adversely affecting their performance, they require separate treatment. A detailed analysis of the constraints has to be made before deciding about their future.

In the absence of operational data of the amalgamated banks, it would be difficult to draw any inference about the impact of the mergers on the financial performance of the amalgamated banks. May be one has to wait for the FY 2006 financial results to be published. Based on that, a definite roadmap may have to drawn from a long-term perspective, avoiding short cuts and temporary deviations.

Dr. N K Thingalaya

Table.1
The New amalgamated Gramin Banks

Numbers in brackets relate to the number of gramin banks merged

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