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Merger of two large Mumbai-based banks likely next year: Rai
NEW DELHI: India may merge two large state banks in the coming financial year once a clean-up of bad assets has run its course, the official overseeing a turnaround
NEW DELHI: India may merge two large state banks in the coming financial year once a clean-up of bad assets has run its course, the official overseeing a turnaround of the sector told Reuters, days before a new process to resolve stressed assets goes live.
Consolidation of India’s public sector banks would represent a final step in rebuilding a financial system capable of underwriting credit growth and job-creating investment in Asia’s third-largest economy.
First, though, the state banks must clean se their balance sheets.
They accounted for 88 percent of a pile of stressed loans that exceeded $138 billion in June, the legacy of al ending bin ge under the last government that has hobbled Prime Minister Narendra Modi’s growth agenda.
Vinod Rai, the veteran bureaucrat hired this year to head a new Banks Board Bureau, said a next step could be the merger of “two large Mumbai-based banks” that he declined to identify.
“Once that consolidation has taken place, in the second phase, we will put a weaker, smaller bank into this merged entity,” he said. “Recapitalising the banks when they are carrying huge amounts of NPAs on their books makes no sense. It just gets lost into that big black hole.”
Rai declined to go into detail, saying deliberations were preliminary and depended on the success of efforts to restructure the balance sheets of India’s nearly two dozen public sector banks.
Apart from market leader State Bank of India, now acquiring several affiliates, the two largest public sector banks based in India’s financial capital are Bank of Baroda and Bank of India.
Rai, a 68-year-old former auditor general, was hauled out of retirement to strengthen management at state banks that had often succumbed to political pressure to back projects that were not economically viable.
