NUMBER OF PSU BANKS TO BE CUT
Consolidation will not result in 45 banks as envisaged earlier as it will create toobigtofail lenders
The govt is looking to reduce the number of state-run banks to 10-15 through mergers and acquisitions so that none of the banks become too big to fail, said Sanjeev Sanyal, principal economic adviser in the finance ministry. ››
MUMBAI: The government is looking to reduce the number of staterun banks to 10-15, more than what was envisaged earlier, through mergers and acquisitions so that none of the banks become too big to fail, said Sanjeev Sanyal, principal economic adviser at the finance ministry.
“Consolidation will not be taken too far to four or five as speculated since the whole system breaks down even if one fails. Possible number will come down between 10 and 15. It will be done on commercial basis,” Sanyal said in an interview.
The consolidation of struggling state-run banks, which have a market share of about 70% and account for over 80% of the bad loans in the Indian banking system, is aimed at building scale and bolstering their risk-taking ability. The government hopes that this, along with measures such as capital infusions in weak banks, will trigger a revival.
“In case of consolidation, one should not factor in balance sheet only but also process, integration of technology and people. For State Bank of India it was easy because they were relatively under the same architecture,” said Kartik Srinivasan, senior vice-president at Icra Ltd.
SBI has merged operations of five of its associate banks and Bharatiya Mahila Bank with itself earlier this year, marking the first consolidation move in the sector following the bad loan crisis. The merger has reduced the number of state-controlled banks to 21 from 26.
It has, however, turned out to be much costlier for SBI than expected, with a drastic deterioration in its asset quality following the merger.
One reason for the sharp increase in bad loans was that the non-corporate loan book of SBI’s associate banks followed an internal classification standard that was different from SBI’s, chairman Arundhati Bhattachary a said after announcing the bank’s June quarter earnings.
The government, S any al said, is willing to go the extra mile to support lenders by infusing capital in excess of the ₹20,000 crore promised as part of the Indradhanush plan over this fiscal year and the next.
Under the Indradhanush scheme introduced in 2015, the government had agreed to inf use ₹70,000 crore in state-run lenders over four years.
“Once the( bad loan) resolution process moves somewhat, we will get a better fix on how much money banks need after accounting for provisioning and recovering ,” Sanyal said .“There area number of options before the government, ranging from re capitalisation through bonds, general budget and reducing holding down to 52% without doing privatisation. Some combination of these will be used.”
Meanwhile, services at public sector banks may take a hit on Tuesday as all unions under the aegis of United Forum of Bank Unions (UFBU) have threatened togo on strike against the government’s proposed consolidation move, besides raising a host of other demands.