Post Merger – Government Wants To Keep 10-15 Big Size Public Sector Banks

If rely on the word of Sanjeev Sanyal, Principal Economic Advisor, Finance Ministry – Government wants to have 10-15 public sector banks with government’s majority stake, down from 21 at present, as part of its plan to consolidate banks. Further, No very weak bank would not be merged with a strong one “as it could pull the latter down.While deciding on the consolidation, the ministry would keep in mind factors like regional balance, geographical reach, financial burden and smooth human resource transition.

He also insisted that banks need to clean up the higher NPA and bad loan problems under major priority and after that, the PSU banks could be consolidated. He also insisted that the merger would be done within larger banks despite of small banks with higher NPA’s. 

Read : Cabinet approves Guidelines For Merger of Public Sector Banks

[box type=”info” ]He said that consolidation of some of these large number of banks, but be clear that we are not going to reduce these down to some people think like 4-5 national champions. We recognize that that will lead to too many ‘too-big-to-fail’ banks. Currently, we have one large bank State Bank of India…We do not want to create a large number of them.[/box]

Other Observations on Consolidation of Public Sector Banks

1. He also made it clear that While deciding on the consolidation, the ministry would keep in mind factors like regional balance, geographical reach, financial burden and smooth human resource transition.
2.  No very weak bank would not be merged with a strong one “as it could pull the latter down.
3. PSU banks will need at least ₹1.9 lakh crore additional capital by March 2019, as the lack of it will restrict their ability to write down non-performing loans.
4. As part of the clean up process, the RBI has already started recognizing the bad assets, provision them and is taking some of them to bankruptcy and insolvency process.
5.  Recapitalization and getting poor banks running again…that will be done in next few months.
6. India’s banking system is way too small for future and needs to be expanded significantly.
7.  Recapitalization bonds is one of the options for infusing capital into banks,
8. Government could also dilute its stake in some lenders to 52 per cent.