India close to approval for bank mergers

In the context of massive accumulation of bad loans by state-run banks, the Union Cabinet yesterday gave an “in principle” approval for their consolidation by merging some of the public sector lenders, Finance Minister Arun Jaitley announced.

“The cabinet approved the constitution of an alternate mechanism that will oversee proposals with regard to consolidation of banks, which will come from the PSBs [public sector banks],” Jaitley told reporters here following the cabinet meeting.

“As of today, there are 20 PSBs plus the State Bank of India [SBI],” he said, adding that the SBI had recently concluded the merger with its associate banks and become a larger consolidated entity.

“If any other PSB board gives a consolidation proposal, to oversee that proposal an alternative mechanism will be in place to give in principle approval for the proposal of the banks for a scheme of amalgamation,” Jaitley said.

Explaining that such an alternative mechanism “enables quick facilitation of decisions”, Jaitley said the constitution of the committee would be made by the Prime Minister.

“The decision regarding creating strong and competitive banks will be solely based on commercial considerations,” he said.

“Our experience of consolidation has been positive. It increases the entity’s commercial strength, the ability to absorb market shocks,” he added.