Govt to set up panel on PSU bank consolidation

07 Mar 2016


The government is for financially sound banks and bankers' themselves have supported the proposal of consolidation of banks in order to have strong banks rather than having numerically large number of banks, union finance minister Arun Jaitley said.

There are more than two dozen state-run banks, most of which are accumulating losses and the government will consider merging some of the least efficient with the better off banks to improve efficiency at the ailing lenders that dominate the nation's banking sector.

Mergers are also seen as an easy option to offsetting ballooning losses at state-run lenders that hold more than two-thirds of assets in the country's banking industry and about 85 per cent of non-performing loans.

A liquidation of non-performing assets will affect the finances of the so-called growth engines and core sectors, that account for most of the banking sector's bad loans or non-performing assets.

Replying to questions at a press conference after the conclusion of the second edition of the bankers' retreat 'Gyan Sangam 2.0' at State Bank Academy at Gurgaon, Haryana, on Saturday, the finance minister sais as part of the strategy for consolidation of banks, an experts' group would be constituted immediately to look into all the issues related to it.

The two day bankers' retreat was held on 4 and 5 March 2016.

Jaitley said that in order to expedite the process of recovery, there is a need to amend the Debt Recovery Tribunal (DRT) Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act) was felt during the course of discussions at the retreat and that the Department of Financial Services (DFS) is looking into the matter. 

The expert committee, which will be soon set up to look into the issue, will closely work with the Banks Board Bureau (BBB) to identify the right matches for consolidation. The BBB is expected to be in place by 1 April 2016.

Consolidation is seen as the only viable option to bringing down government's share in state-owned banks below 51 per cent, the sources said.

State-run lenders hold more than two-thirds of assets in India's banking industry. But they also hold about 85 per cent of non-performing loans after adding toxic assets at a faster pace than their private sector rivals, hurting profitability.

The bankers retreat also saw groups brainstorming on initiatives in five key areas, viz, NPA management, restructuring (mergers and acquisitions), credit growth, technology and risk management. There was also intense debates on the issues facing the sector, potential solutions and key initiatives to be taken to help resolution.

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