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Informist, Wednesday, Oct. 23, 2024

 

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--Fin min source: Looking to have 6-8 really large PSU bks in medium term
--Fin min source: Current econ situation doesn't warrant PSU bk privatisation
--Fin min source: 6-8 large PSU bks to fulfil all credit needs of economy
--CONTEXT: Govt announced plan to privatise 2 PSU banks in FY22 Budget
--Fin min source: India needs truly big banks with widespread presence
--Fin min source: India needs truly big banks with strong financial records
--Fin min source: Smaller PSU banks yet to reach scale for large lending ops

 

By Sagar Sen and Priyasmita Dutta

 

NEW DELHI - The banking sector is set for an upheaval as Prime Minister Narendra Modi's government, in its third term, is keen to consolidate public sector banks into six to eight large lenders that will channelise credit into the economy. The idea is to have a maximum of eight PSU banks that cater to the masses and provide a wide range of financial products to an aspirational population, a top finance ministry official said.

 

Currently, India needs truly big banks that have a presence throughout the country and strong financial records so that they can have a significant imprint in global financial markets as well, the official said. This will enable them to go ahead and lend to various segments of the population and handle big infrastructure projects without stressing their own balance sheets, the official added.

 

"In the present economic environment, it does not make sense for PSU banks to be privatised. All the banks are doing very well. However, there is a need to move in a particular direction so that they ramp up their domestic as well as overseas operations," the official told Informist.

 

The official's comments suggest that the previous plan to privatise two state-owned banks will have to be shelved. Currently, there are 12 state-owned banks, including State Bank of India, Punjab National Bank and Bank of Baroda. The official said that smaller banks such as Indian Overseas Bank, UCO Bank, Punjab & Sind Bank, Central Bank of India and Bank of Maharashtra, though self-sufficient, are yet to reach scale and size that will enable them to handle large lending operations throughout the country.

 

The total outstanding credit of commercial banks as on Oct. 4 was at INR 172.97 trillion, a jump of 77% over a five-year period. In the Budget for 2021-22 (Apr-Mar), Finance Minister Nirmala Sitharaman had announced plans to privatise two public sector banks. But the inordinate delay in the privatisation of IDBI Bank, which is yet to see the light of day, has not been an encouraging experience for the government.

 

The finance ministry official also observed that larger banks would be in a better position to mobilise deposits, which is an increasingly urgent need for the banking sector. The official pointed out that customers are more comfortable parking funds with larger lenders with a countrywide presence, and such banks are also in a better position to come up with innovative financial products.

 

Referring to the P.J. Nayak Committee and the Narasimham Committee, which had recommended consolidation of the banking sector, the official said in the past the government had successfully merged a large number of banks of various sizes.

 

In its second term, the Modi government had in August 2019, announced a mega-merger plan for 10 public sector banks. Oriental Bank of Commerce and United Bank of India were merged into Punjab National Bank; Andhra Bank and Corporation Bank were merged into Union Bank of India; Syndicate Bank was merged with Canara Bank; and Allahabad Bank was merged into Indian Bank, which came into effect from Apr 1, 2020. Prior to this, Vijaya Bank and Dena Bank were merged into Bank of Baroda. State Bank of India merged five of its associate banks and Bharatiya Mahila Bank with itself.

 

The trick this time will be to find the right fit for the banks to be merged, the official said. While there is no timeframe for the government to set in motion the merger plan, it may take up to five years to achieve the desired number of PSU banks.  End

 

Edited by Vandana Hingorani

 

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