According to government officials who spoke to Moneycontrol, the government is preparing a massive merger that could combine smaller lenders with larger banks, bringing India's banking industry closer to yet another round of public sector bank consolidation.
According to a source, the goal is to simplify the PSB landscape so that there are fewer, more powerful organizations that can assist with the upcoming stage of credit growth and financial sector reforms.
According to government sources, major banks like Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI) may combine with Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM).
"The PMO will review a record of the plan's discussion after it has been taken up by senior Cabinet officials." The goal is to "finalize the roadmap within the same year," therefore discussions are anticipated to continue in FY27.
In order to facilitate consultations and get the opinions of the participating banks, FY27 is probably a good timeframe. According to the source cited above, "the government wants to build consensus internally before making any formal announcements." The finance ministry did not respond to an email asking for remarks.
In order to create stronger, better-capitalized banks that could compete globally, the government merged 10 PSBs into four larger entities between 2017 and 2020, reducing the number of state-owned banks from 27 in 2017.
Syndicate Bank merged with Canara Bank, and Oriental Bank of Commerce and United Bank of India merged with PNB. This development comes as the Center looks to revive PSB consolidation. The government plans to take up the merger proposals as part of its medium-term banking sector reform strategy.
The ongoing drive for a merger also goes against the suggestions made by NITI Aayog to reform or privatize smaller PSBs, like CBI and IOB, which were considered as possible candidates for a strategic sale. Only a small number of major state-run banks, including SBI, PNB, BoB, and Canara Bank, were to be retained, according to a government think tank.
The remainder institutions would either be privatized, merged, or have their government ownership reduced. According to someone with knowledge of the talks, "the current plan builds on those recommendations but adapts them to present conditions." "The idea is to strategically position PSBs rather than spread them thin, given the rapid expansion of fintech and the scale expansion of private banks."
What is the record of discussion?
The record of discussion is an internal government document that captures the key points of deliberations. It forms the basis for subsequent decision-making and approvals.
What is the timeline being considered?
According to sources, the proposals are expected to be taken up for inter-ministerial discussions in FY27, which would then be deliberated upon by the cabinet and Prime Minister's Office (PMO) level deliberations in the same fiscal year.
Why is the government considering further consolidation?
The objective is to create larger, stronger banks with better balance sheet capacity, improve operational efficiency, and enhance competitiveness in the global financial landscape.
Source - Moneycontrol
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