The government will set up a panel to consider merging some of its more than two dozen banks, Finance minister Arun Jaitley said on Saturday, vowing to improve efficiency at state-run lenders, many of which are creaking under bad debt.
The panel will work with the Banks Board Bureau (BBB) -- an independent body to oversee the functioning of lenders -- to come up with a plan on consolidation, an idea strongly supported by bankers, Jaitley said.
“You need strong banks rather than numerically large numbers,” he said after a two-day annual brainstorming event of industry leaders and officials from the Reserve Bank of India and finance ministry.
State-run banks hold more than two-thirds of assets in the country’s banking industry but they also account for about 85% of bad loans, adding toxic assets at a faster pace than their private sector rivals are hurting profitability.
Jaitley said nursing the state-run banks back to health was a top priority for the government.
He said the government will neither write off loans nor spare wilful defaulters, and that the proposed bankruptcy law will help banks recover their loans. The absence of such a law allows defaulters to go to court to delay or avoid repayment.
Jaitley said the staff at public sector banks will be incentivised, including offering them employee stock ownership plans (ESOPs). Campus recruitments will also be encouraged.