Keen to push consolidation in the public sector banking space, the government is looking to set up a new mechanism to speed up decisions on possible mergers among state-run lenders.  

The new process will be along the lines of the alternative mechanism that’s been adopted for strategic disinvestments, which involves a small group of cabinet ministers. 

PSU Banks Merger Combination under Discussion

“We are discussing various combinations for merger in public sector banks. The basic premise remains the same, that is to put the process on a fast track,” said a government official aware of the deliberations, adding that this option may also be explored for the IDBI Bank stake sale. 

Banks Merger on Fast Track
Banks Merger on Fast Track

The government announced its intention of reducing its stake in IDBI Bank to below 51 per cent last year but this hasn’t taken place yet on account of the lender’s bad loans and as the valuation exercise hadn’t included its real estate assets. The government has already announced its intent to press for consolidation in the banking sector. 

Finance minister Arun Jaitley said in June that the government was “actively working” toward consolidation but did not share any details, stating this was price-sensitive information. 

He was speaking after reviewing the quarterly performance of India’s 21 state-run banks. Earlier this year, four state-run banks — Syndicate Bank, Canara Bank, Vijaya Bank and Dena Bank — made presentations to the finance ministry on likely consolidation plans. 

State Bank of India absorbed five of its associate lenders and the Bharatiya Mahila Bank in April, creating a larger bank that accounts for a quarter of all outstanding loans. 

Idea under deliberation 

The idea is in the early stages of deliberation, according to another government official. The government has adopted the alternative decision-making mechanism to expedite stake sales in government-run companies. 

Cabinet approval won’t be needed at every stage with this mechanism in place, making the process faster. This process is being employed to pursue a stake sale in national carrier Air India as well. 

The cabinet committee on economic affairs (CCEA) on Wednesday expanded the scope of the alternative mechanism for pursuing the government’s strategic sale disinvestment programme. 

It comprises finance minister Arun Jaitley, roads minister Nitin Gadkari and the minister of the relevant administrative department. This mechanism can now decide on matters relating to terms and conditions of the sale from the stage at which expressions of interest are invited to that of seeking financial bids.

Source : Economic Times


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