More PSBs to merge after SBI and associates
Enthused by the success of the State Bank of India (SBI) merger, the finance ministry is considering clearing another such proposal in the public sector banking space in this financial year, with a goal to create four-five global-sized lenders.
Five associate banks and Bharatiya Mahila Bank became part of SBI on April 1, catapulting the country’s largest lender to among the top 50 banks in the world.
Now, the ministry is looking to replicate the model in the case of other state-run banks so that they reach critical mass to compete with global peers.
“Consolidation is a must... but decision in this regard would be based on commercially prudent parameters. If the non-performing assets (NPA) situation gets better, there could be one more merger towards the end of this fiscal,” a senior official told PTI.
Toxic loans of public sector banks rose by over ~1 lakh crore to ~6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
Finance Minister Arun Jaitley has on several occasions said India needs five-six banks of global size and scale and further consolidation in the banking sector will be done at the appropriate time. Whenever consolidation happens, it takes into consideration interest of all stakeholders including employees and shareholders, the official said, adding it has to be a win-win for all parties.
A balancing act has to be done before any merger is giv- en clearance by various author- ities and regulators, the official added. The future merger proposals in the banking sector will also require clearance from the Competition Commission of India (CCI) to see if the merged entity is going to create a monopoly.
In the consolidation drive that saw the light of day in April, a CCI nod was needed only in the case of merger of the Bharatiya Mahila Bank (BMB) with SBI. There was no such requirement for merger of associate banks with SBI as they were part of the parent.
The finance ministry has sought help of the NITI Aayog and global consultancy firms to examine the possibility of a next round of consolidation of PSU banks.
NITI Aayog’s report is expected to set tone of the roadmap for consolidation in the future. There are factors like regional balance, geographical reach, financial burden and smooth human resource transition that have to be looked into while taking a merger decision, the official said. The official added that there should not be merger of a very weak bank with a strong bank, “as it could pull the latter down”.