Fresh from the successful merger of five associates with the State Bank of India, the government is looking to consolidate more public banks going forward, with an aim to create only a few lenders of global size and scale.
The Finance Ministry, according to an official, “will soon undertake a broad study on further consolidation and look at various options for merger among the remaining 21 public sector banks.”
There are factors like regional balance, geographical reach, financial burden and smooth human resource transition that have to be looked into while taking a merger decision, the official said on condition of anonymity, adding that there should not be merger of a very weak bank with a strong bank “as it could pull the latter down.”
‘Low-hanging fruits’
“There are some low-hanging fruits. For example, Punjab and Sind Bank can be merged into Punjab National Bank. Big lenders like Bank of Baroda can take over some turnaround banks in the southern region such as Indian Overseas Bank.
Dena Bank could be merged with some large south Indian bank,” the official explained.
The merger process will get a boost with the likely improvement in the NPA (non-performing asset) situation over the next two quarters, the official said, adding that “some movement on this front would begin soon.”
Bad loans of public sector banks rose by over ₹1 lakh crore to ₹6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
Last week, Reserve Bank of India Governor Urjit Patel said Indian banking system could be better off if some public sector banks are consolidated to have a fewer but healthier entities as it would help in dealing with the problem of stressed assets.
“As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks,” Dr. Patel said.
CCI nod
The merger proposals in the banking sector would require clearance from the Competition Commission of India, according to the ministry official.
