Govt pushing bank mergers to supplement recapitalisation

The government plans to kick of a consolidation process for banks beginning with the merger of State Bank of India and its associate State Bank of Patiala. Besides, reports say, the government has asked IDBI Bank and United Bank of India to prepare a consolidation plan.

Financial services secretary G S Sandhu had, earlier this month, said the government proposed to push the idea of bank mergers and consolidation in order to meet the huge recapitalisation needs of public sector banks that are hamstrung by rising bad loans.

State-run banks would require additional capital of Rs240,000 crore by 2018 under the BASEL-III requirements and this may require raising capital from the market as well as the government or the banks will not be in a position to garner enough funds.

The government had initiated a merger process for SBI and its subsidiaries, which began with the merger of State Bank of Saurashtra with SBI in 2008. Two years later in 2010, State Bank of Indore was merged with SBI.

SBI is now left with five associate banks, which include State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed entities.

Finance minister Arun Jaitley had said in his Budget speech, "There have been some suggestions for consolidation of public sector banks. Government, in principle, agrees to consider these suggestions."

Addressing reporters after the budget, Jaitley had said that the consolidation could be between a big bank and its subsidiaries.

The government, however, is planning a phased capitalisation over a five-year period, beginning this year.