Avoid mergers, says banking reforms committee report
View(s):The report of the committee headed by banking expert Dinesh Weerakkody examining proposed financial reforms in the banking sector which was presented to Prime Minister Ranil Wickremesinghe on Friday has said mergers between banks should be avoided, official sources said.
“Mergers to be carried out within a stipulated time frame as stipulated in the Central Bank (CB) master plan will have even less chance of succeeding and therefore should be avoided in the future. When banks consolidate voluntarily, they take the needed measures to protect their own interests and would not participate in any merger or acquisition unless it is driven to benefit all stakeholders,” the report has said.
The committee, appointed soon after the advent of the new Government, was mandated with examining the reforms in the banking sector including a proposal to merge the DFCC and the NDB. These reforms were introduced by the former regime.
According to this report, the involvement of the state in private sector banks must be reduced either through the application of the same aggregated shareholder limits as applicable to private shareholders or by placing a cap on aggregate voting rights to promote good governance and stability within the private sector banks.
It says notwithstanding the ranking order (for NBFIs) made under the CB plan, mergers should occur only among consenting parties and on a voluntary basis, subject to economically viable and sustainable criteria that encourage institutions to consolidate.“The element of coercion and compulsion embedded into the previous consolidation exercise is deemed unwarranted. The grading of the entities into “A & B” has been detrimental to some companies and overall market sentiment, even affecting the trust and value of the relevant entities and the sector.”
The implied but unspecified penalties for non-compliance, forced consolidation with unrealistic timelines, unilaterally enforced mergers or acquisitions without proper valuations or acceptance of the valuation by the parties must be avoided in the future, the report says.