MUMBAI, Dec 25: The Reserve Bank of India (RBI) has strongly advocated mergers and acquisitions in the financial sector. Referring to the merger of SCICI with ICICI, the Reserve Bank's Report on Currency and Finance says: "The merger of the two institutions should not be looked into in isolation. It may be the beginning of the process of consolidation in the financial sector."

This is for the first time the central bank has indicated that mergers and acquisitions are likely to become the order of the day in the financial sector. "It is through merger that banks and financial institutions can consolidate their business," the report says.

The Narasimham committee on financial sector reforms also visualised large-scale mergers in the financial sector. Former Reserve Bank governor C Rangarjan, however, never spoke in favour of mergers and acquisitions in the financial sector.

Mergers and acquisitions have also become the order of the day in the corporate sector. The RBI report, released on Thursday, said: "The industrial sector of India has been undergoing restructuring in a substantive way...The corporate units have increasingly resorted to mergers and acquisitions as they entail significant gains in terms of synergy, economics of scale, better financial and marketing advantages..."

According to industry analysts, some of the sectors--in which the government had large holding like telecommunication, pharmaceutical, energy and transport sectors--went in for complete re-orientation and a "change of image".

The industrial sector witnessed companies shedding excess weight to fit into slimmer and trimmer outfits. A number of corporate tie-ups and strategic alliances with foreign partners have taken place recently. The objective is to improve their position in the market.

Mergers and acquisitions, flattening of structures and bottomline-orientation have became the order of the day. Indian corporates went in for major restructuring exercise in a bid to improve their inventory management and enhance their product capacity.

The industrial sector witnessed diversification of activity, internal and external cost-cutting measures and overall market competitiveness, the report said.

The pharmaceutical, cement and steel sector witnessed a massive manpower downsizing. Industry experts claim that this is the second stage of economic liberalisation. According to them, downsizing has become the name of the game in the Indian corporate sector and this phase will continue for another couple of years

.The performance of the industrial sector remained subdued during the first quarter of 1997-98 except mining, quarrying and electricity generation sector. The manufacturing sector registered 4.8 per cent growth as compared to 15 per cent in the corresponding period last year. Mining and quarrying sector registered as accelerated growth of 7.1 per cent in the first quarter of the current fiscal as compared to 2.5 in the corresponding period the previous year whereas electricity generation sector registered an accelerated growth of 5.4 per cent in the same period as compared to 2.2 per cent the previous year.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.