Union cabinet sets up panel to supervise PSU bank merger proposals

With the merger, the government hopes state-owned banks will achieve economies of scale and operational efficiency while managing risks in a better way.

business Updated: Aug 23, 2017 17:15 IST
Union cabinet,Public sector banks,PSU
New Delhi: Union finance minister Arun Jaitley addressing a press conference after a cabinet meeting in New Delhi on Wednesday. (PTI photo)

The Narendra Modi government on Wednesday decided to take consolidation in the banking sector to the next level by setting up a ministerial panel led by finance minister Arun Jaitley to consider and oversee merger of 21state-owned banks.

Jaitley, who briefed reporters after the cabinet took the decision, said that merger proposals have to come from the board of directors of banks and that decisions on them will be taken purely on commercial considerations.

“The objective is to create strong banks and the experience of bank mergers has so far been positive,” said Jaitley.

With the merger, the government hopes state-owned banks will achieve economies of scale and operational efficiency while managing risks in a better way. Consolidation is also likely to help them better deal with their credit portfolio including stressed assets. The move follows the merger of State Bank of India (SBI) with its five associate banks and Bharatiya Mahila Bank (BMB) in April.

Jaitley did not rule out SBI taking part in the merger exercise. Consolidation prevents multiplicity of resources being spent in the same area and strengthens banks to deal with shocks, the minister said.

Prime Minister Modi will decide who all will be there in the ministerial panel, referred to as the alternative mechanism. After the banks that are interested in getting merged secure in principle approval from the ministerial panel, they will take steps as per regulatory requirements.

Experts welcomed the move. “Merger of public sector banks is a good idea as it will bring more efficiency. The consolidated entity under a single management will be able to capitalise on the synergy among its various constituents,” said Kalpesh Mehta, partner at Deloitte in India.

(Published in arrangement with Livemint)

First Published: Aug 23, 2017 17:04 IST