Speaking at an event, Acharya said that sometimes...
merging stronger entities with weaker entities leads to bringing down the stronger entity. He, however, clarified, that these are his personal views and do not reflect the views of the central bank.
The consolidation in the banking sector has gathered momentum as the government asks public sector banks to present merger proposals based on their commercial strengths.
According to media reports, four state-run lenders — Dena Bank, Syndicate Bank, Vijaya Bank and Canara Bank — have already made presentations to the government.
Stating the example of Bank of America (BoA), which was considered amongst the healthiest banks before the 2008 real estate, Acharya said BoA weakened significantly after it acquired Countrywide and Merrill Lynch, which had a lot of bad loans.
Former RBI governor Raghuram Rajan earlier said that PSB mergers must take place when the banks are healthy while most of them are yet to clean up their balance sheets.
“You have to be careful because mergers take time and consume a lot of time from the senior management and banks are different entities with different geographies and culture,” said Rajan.
After the merger of the country's largest bank State Bank of India with its five associates and Bharatiya Mahila Bank, the banking system has seen a huge precedent but it remains to be seen if banks would be better or worse off post the merger in terms of the asset quality and capital positions.