PSBs consolidation building block for $5T economy: Finance Secretary

The consolidation will help create strong and globally competitive banks with economies of scale and enable realisation of wide-ranging synergies, Finance Secretary Rajiv Kumar told PTI.

2nd Sep 2019
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The government's decision to consolidate 10 public sector banks (PSB) into four mega state-owned lenders will act as a building block for achieving $5 trillion economy target, Finance Secretary Rajiv Kumar has said.

"To support next level of growth, the country needed big banks. The mega merger announced on Friday aims to achieve that objective. We will now have six mega banks with enhanced capital base, size, scale and efficiency to support high growth that the country requires to break into club of middle income nations," he told PTI in an interview.

The consolidation will help create strong and globally competitive banks with economies of scale and enable realisation of wide-ranging synergies, he said adding that now they would have wider reach, stronger lending capacity, and better products and technology to serve customers of new India.


Asked about the road map for future, he said the banking sector would be "technology driven, clean, responsive" and there will be no gaming of system by any of the stakeholder in the financial sector space be it auditors, rating agencies, creditors, or bankers. "All well capitalised well provisioned banks to support $5 trillion economy." 


The state-owned banks can now look forward to efficiency gain, higher profit, better services to customers and also more benefits to their employees, he said.

For bigger banks, he said, the government has provided 0.25 percent higher capital than required keeping in the mind their domestic systemically important status. Moreover, he added, the Indian banks are having one percent higher core capital requirement than the Basel III norms. 

On the effective date of merger, he said it would be fixed after consultation with respective bank boards as had happened in case of Bank of Baroda.


PSB


"There is a process which needs to be followed. There are some regulatory approvals which are required. Banks have sufficient time for charting out smooth and seamless amalgamation date. It could happen from January 1 or April 1 depending on their readiness. It would not be later than April 1," he said. 

During the intervening time-frame, he said, credit growth will not stop and there will be no disruption for the customers.


When asked about rationale for doing all the four mergers together, Kumar said, "We wanted to do it one time, give the road map and remove the uncertainty. Now there is no uncertainty and road map is all clear. Governance reforms done. Who wants to give their power, we have given it. Even in appointments we have given it. Now it is completely professionalised." 


Kumar, who spearheaded the exercise of cleaning up the banking sector, has several firsts to his credit. These include highest ever capital infusion in the banking history and successful completion of the first three-way merger with Bank of Baroda as the anchor bank.


As a result of host of initiatives taken by the Finance Ministry, the banking sector witnessed a reversal in the deteriorating bad loan situation with reduction of NPA by 1.06 lakh crore and record loan recovery of Rs 1.21 lakh crore in the last fiscal. 


The clean-up exercise undertaken by him has now started showing result with 14 banks out of 18 posting profit in the first quarter of the current fiscal. 

The government on Friday unveiled a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as it looks to boost economic growth from an over six-year low.

Finance Minister Nirmala Sitharaman, who had last week announced tax sops and measures for sectors such as auto, announced four new sets of mergers -- Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation's second-largest lender; Canara Bank and Syndicate Bank will merge; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will merge with Allahabad Bank.


The exercise, seen together with the previous two rounds of bank consolidation, will bring down the number of nationalised public sector banks to 12 from 27 in 2017. 


Prior to BoB merger this year, the government had experience of State Bank which had merged five of its associate banks - State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bhartiya Mahila effective April 2017.



(Edited by Evelyn Ratnakumar)




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