Narendra Modi to speed up state-run bank mergers

NEW DELHI: Central Government has given a go ahead to proposal to set up a ministerial panel in order to speed up consolidation of state-run banks as part of its attempts to revive credit and economic growth.

If sources are to be believed, Prime Minister Narendra Modi is going to name the members of the panel, which will be given a responsibility of overseeing proposals for mergers from the boards of the banks.

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Statistics wise, Centre owns majority stakes in 21 financial institutions, which roughly account for over two-thirds of banking assets in Asia’s third-biggest economy.

But fact of the matter is that these financial institutions also account for the lion’s share of more than $150 billion in sour assets plaguing the sector, and need billions of dollars in new capital in the next two years to meet global Basel III capital norms.
And that is where, one can safely say that banking sector reforms are a major plank of Modi’s administration to revive credit growth, which has slowed to multi-decade lows as banks struggle with bad loans.
After top bank State Bank of India merged with its five subsidiary banks and also took over a niche state-run lender for women earlier this year, officials have said that more deals are being planned.
“The object is to create strong banks,” Jaitley told reporters, adding decisions would be solely based on “commercial considerations”.
He also added that emphasis is on initiating such merger proposals would be on the boards of the banks.

 

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Bank employee unions is not in favor of merger proposals over concerns they could lead to job losses. A million bank workers observed a one-day strike on Tuesday opposing bank mergers.

On the other hand, nine of the 21 state-run banks reported a net loss for the last financial year ended March. Thirteen had posted losses the previous financial year.

 

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