The Turnaround of Indian Bank

The loopholes were exposed by the introduction of the new banking norms in 1992. The reasons behind the weaknesses are described below. First, though the bank had a loyal customer base, analysts felt that people stayed with the Indian Bank only because of a lack of competitive alternatives.

Customers, who felt that one PSB was as good as another, did not feel the need to move to other banks. However, with the opening up of the banking sector in the 1990s, private banks began offering more variety and flexibility in services. The rather obsolete systems of operation at the Indian Bank caused customers to drift way.

The committee felt that the cost of closure would be too high for the depositors, clients and employees of the bank and it would have adverse consequences on too many people. Merger with a healthier institution was also ruled out because of the possible undesirable consequences of merging a sick unit with a healthier one. The Indian banking sector had witnessed only one merger between PSBs - between PNB and New Bank of India in 1993. This merger, however, was not successful. PNB, a strong bank with an uninterrupted record of profits, suffered a net loss of Rs. 95.90 crore in 1996. The bank also had to face litigation and other problems, especially with regard to service conditions of the staff taken over from the New Bank of India...