Indian government may merge 27 public sector banks

New Delhi (PTI):  The central government is planning vital steps to consolidate public sector banks in order to strengthen them. On account of this 27 public sector banks would be merged and reduced to form 4 to 5 strong banks. It is been said that in the current financial year to start this process, five banks would be merged in State Bank of India.

Indian government may merge 27 public sector banksIn the recent years it has been noted that there is a steady increase in the NPA’s (Non-Performing Assets or the loans that dont yield returns) of public sector banks. The money lost every year in these bad debts pose a threat to the Indian banking sector. This would in turn also affect the Indian economy. On this background, in order to provide pace to the growing economy there is a principle demand to reduce bank NPA’s. The government and RBI have already agreed and provided more empowerment and independence to public sector banks to recover NPA’s. However, still there has been no satisfactory success in recovery of bad debts.  Due to the increasing bucket of bad debts the public sector banks are now in a problematic situation. In order to support and bail out the public sector banks the government has shown its readiness to provide extra capital to the ailing banks. Finance Minister Arun Jaitley has announced the government’s willingness to provide a capital of 25,000 crores to the public sector banks in the current financial year. However, seeing the current situation,merger and consolidation of the public sector banks would surely help in strengthening their position.

Hence, the merger of 27 public sector banks into 4 or 5 banks has been grossly thought by the government. Recently, the central cabinet has approved the proposal for merger of 5 subsidiaries banks of State bank of India namely, State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore & Hyderabad and Bharitiya Mahila Bank in the State Bank of India

To further provide a boost to the banking sector the government has decided to provide a capital of 25,000 crores in the current financial year and 70,000 crores in the next four years. On the basis of this in the current financial year, year 2017-18 and year 2018-19 the government would provide a capital of 10,000 crores to public sector bank. The government would also try and help the banks to raise an additional 1.1 lakh crores in order to take care of the capital expenditures.

The government has decided to reduce its stake in IDBI bank from 80% to 60%.  Further, the government also want to reduce its stake in all public sector banks to 51%. However care must be taken that the governments stake should not fall below 51% which could be a cause of concern. Thus to strengthen the public banks these 27 banks would be merged together to have only 4 to 5 operational banks.