Jaitleyled panel to study bank merger proposals
NEW DELHI: A three-member ministerial panel on public sector bank consolidation led by finance minister Arun Jaitley will consider merger proposals from banks as well as nudge some of them to combine with each other, according to the panel’s mandate released on Wednesday.
The proposals received from banks for in principle approval for mergers will be placed before the ministerial panel, referred to as the alternative mechanism. A report on the proposals cleared by AM will be sent to the cabinet every three months, said a statement from the finance ministry on Wednesday.
The other members of the panel are railway and coal minister Piyush Goyal and defence minister Nirmala Sitharaman.
“Govt walks the talk on banking reforms; constitutes Alternative Mechanism for PSBs consolidation; Finance Minister to head,” financial services secretary Rajiv Kumar said in a post on Twitter.
According to the government statement, the panel may direct banks to examine proposals for amalgamation. The panel will also receive inputs from Reserve Bank of India (RBI) before according an in-principle approval.
Last week, the government had announced a Rs2.11 trillion bank recapitalisation plan for public sector banks weighed down by bad loans, seeking to stimulate the flow of credit and spur private investment.
While announcing the capital infusion roadmap for public sector banks, Jaitley had said the move will be accompanied by a series of banking reforms over the next few months. The constitution of the panel is a move in that direction. The Union cabinet in August had decided to set up the alternative mechanism (AM) to fast-track PSU bank consolidation.
“AM shall devise its own procedure for appraisal of amalgamation proposals by banks, and be guided overall by the objectives of the Nationalisation Acts {Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980},” the statement said.
The final schemes formulated will be approved by the central government, and laid in both the houses of Parliament, it added.
The consolidation of struggling state-run banks, which have a market share of about 70% and account for over 80% of bad loans in the Indian banking system, is aimed at building scale and bolstering their risk-taking ability.
Consolidation is also likely to help them deal better with their credit portfolio, including stressed assets. Consolidation prevents multiplicity of resources being spent in the same area and strengthens banks to deal with shocks, Jaitley had said in August.