Public sector banks’ merger process may
see a ray of hope yet again as the Cabinet has given “in-principle approval” to
set up an alternative mechanism to go ahead with the consolidation process.
A group of ministers (GoM)
will be formed on the basis of an alternative mechanism for the merger of
public sector banks. The sources add that while
the in-principle approval for the next level of PSU (public sector undertaking)
bank mergers has been given, the names of the banks for the merger will be
submitted to the GoM.
The names of the banks to be
merged will be decided on four major points -- profit of the banks chosen,
similar geographical coverage, comparable asset quality and capital adequacy
ratios.
The merger of the government
banks will be initiated under Sec 9(2)(c) & 9(6) of Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970. All banks except State Bank ofIndia and IDBI Bank come
under this section.
In April, State Bank ofIndia completed one of the biggest mergers in banking history
absorbing six banks - five associates and Bharatiya Mahila Bank in April, creating
one of the top 50 global banks, accounting for a quarter of all outstanding
loans in the country.On Tuesday, SBI Chairman
Arundhati Bhattacharya said the economy needs bigger banks to meet its growing
needs, but they should be nimble in their response.
Joining finance minister Arun
Jaitley and Reserve Bank of India governor Urjit Patel in their campaign for
consolidation of state-run banks, Bhattacharya said, "Mergers should be
such that it should benefit the customers and should also result in adding
value to shareholders...Mergers should reduce dependent of capital resources
from the government."
On Saturday, Patel said that
the central bank is in dialogue with the government to prepare a package
of measures including mergers to enable PSBs to shore up requisite capital in a
time-bound manner."The
measures could include a combination of capital-raising from the market,
dilution of government holdings, additional capital infusion by the government,
mergers based on strategic fit, sale of non-core assets, etc.," he said.
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