Former Reserve Bank of India Governor Raghuram Rajan has questioned the government’s move to merge public sector banks, in an interview with The Economic Times. Rajan said that consolidation of public sector banks was a difficult process and the government must explain how it would be helpful to the economy.

“Consolidation itself requires a whole lot of time and effort by bank chief executive officers and bank managers throughout the system,” Rajan said. “You have to merge IT systems, you have to merge cultures, you have to merge human resource systems etc. That involves a tremendous amount of work.” He said the fact that public sector banks were already weak would make mergers even more complex.

Rajan also questioned the dominant role being played by the government in these mergers. “Are all these plans going to be finalised by the North Block [the seat of the central government]?” Rajan asked.

The Union Cabinet on August 23 gave its in-principle approval for the merger and consolidation of public sector banks. The Cabinet gave the go-ahead to set up a mechanism to carry out such mergers. The move is aimed at improving the efficiency of public lenders, which are burdened with bad loans, and also saving capital.

The Finance Ministry’s Principal Economic Advisor Sanjeev Sanyal had said on August 21 that the government wants to reduce the number of Public Sector Unit banks to 10 to 15. Currently, there are 21 public sector banks.