Government has asked its central bank to prepare a list of candidates for merger
among 21 government-controlled lenders as it seeks to strengthen a
banking system laden with bad debt, people familiar with the matter
said.
In a meeting this month, finance ministry officials also asked the Reserve Bank of India
to suggest a time frame for the consolidation, the people said, asking
not be named as the information isn’t public. The move is aimed at
creating fewer, better-capitalized lenders and improving regulatory
oversight, they said.
India has been battling for years to clean up its banks, which have
the highest bad-loan ratio after Italy among the world’s 10 largest
economies. Government-controlled lenders are estimated to hold 90
percent of non-performing loans, and 11 of the 21 are operating under an
emergency program, supervised by the RBI, which restricts new lending.
A phone call to a finance ministry spokesman and an email to the RBI seeking comment weren’t immediately answered.
State-backed lenders need to consolidate to avoid losing more market
share to peers in the private sector, the outgoing chairman of Bank of
Baroda Ravi Venkatesan said last month.
Almost 70 percent of new deposits went to private banks in the
latest fiscal year and they’re estimated to have cornered nearly 80
percent of incremental loans through 2020 as mounting bad debt erodes
capital and constrains lending at state banks. Weak balance sheets and
laws that require the state to hold at least 51 percent of their shares
have left public lenders dependent on the government for new capital.
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