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Jaitley to lead ministerial panel to oversee merger of state-owned banks

The Narendra Modi government on Wednesday decided to take consolidation in the banking sector to the next level by setting up a…

Jaitley to lead ministerial panel to oversee merger of state-owned banks

Arun Jaitley (Photo: IANS)

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 the Union finance minister Arun Jaitley to consider and oversee merger of 21 state-owned banks.
Jaitley, while briefing the media 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 alternative mechanism will help fast-track approvals. The objective is to create strong entities and any decision regarding consolidation will be based on commercial feasibility,” the finance minister added.
A panel of ministers, whose members will be decided by the Prime Minister, will examine these consolidation plans. After an in-principle approval from this panel, banks will abide by Securities and Exchange Board of India and Reserve Bank of India regulations.
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 with its five associate banks and Bharatiya Mahila Bank 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.
The consolidation plan follows a successful integration of State Bank of India with its five associate banks and Bharatiya Mahila Bank. The merger, announced last year, became effective on April 1 and did not see much opposition from employee unions. While the merger process went through smoothly, the consolidated book of SBI has seen its gross non performing assets jump to just under 10 percent. SBI is also in the process of rationalising branches and re-deploying staff within the consolidated entity.
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.
Welcoming the move Kalpesh Mehta, partner at Deloitte in India said, “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.”
The consolidation plan comes at a time when most public sector banks have seen a pile up of bad loans. A high level of bad loans has also meant that banks need to set aside more funds for provisions, which has reduced the capital levels on bank balance sheets. The government has committed to infusing Rs 10,000 crore into banks this fiscal, which most external agencies believe will be inadequate.

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