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The firm continues its ill-logic!

Despite global studies (KPMG, NYSE, Booz Allen Hamilton etc) confirming that between 60 to 80% mergers and acquisitions (M&As) always fail, and despite their own studies showing how more than 50% M&As always result in destruction of shareholder value, Mckinsey seems to have suddenly woken up with gregarious findings that the best method to clean up the Indian banking system is for the government to allow its stake in banks to be acquired by others. McKinsey amusingly claims that this “cleaning up” might add around $47 billion to the GDP every year and an additional tax revenue of $11 billion.

Perhaps they cannot be blamed, can they. McKinsey has had a vibrant background of providing illogical inferences. In their 2006 report titled ‘Accelerating India’s Growth’, McKinsey incorrectly claims that RBI has set a lower limit for Indian banks’ lending to priority sector (small scale industries, agriculture et al) at 36% of net credit of any bank. The figure set by RBI in reality is 40%. And in reality, and thankfully so, the amount all banks currently lend to the priority sector is a smashing 57% of their net credit.

Worse, McKinsey’s sophomore logic also inanely champions that the priority sector is actually loss making, therefore lending should be reduced with immediate effect. B&E has repeatedly criticised any such move to RBI. Vindicating our stand, RBI, as a slap to McKinsey’s so-called findings, on November 11, 2006, has drafted a move to actually increase the above mentioned limit of 40%.

As the Grameen Bank example (where Muhammed Yunus, the 2006 year Noble peace prize winner, is the founder head) has shown in Bangladesh, rather than reducing lending to the priority sector, banks can well do with structural reforms, improving efficiency and reach with rural masses. For information, Grameen Bank’s operating income last year was a stupendous 5 billion taka! How’s that for priority sector lending?

By:- B&E

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