The government will identify six to ten public sector banks which will drive the consolidation process among the state-owned banks, according to bankers.
Called the anchor banks, they will be identified by October 31, 2016, the bankers told The Hindu.
Large lenders like State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB) and Canara Bank could become the anchor banks, they said.The government will set up an expert panel for the consolidation process. The Bank Board Bureau headed by former Comptroller and Auditor General (CAG) Vinod Rai, which was recently formed to select chief executives and board members of public sector banks, will also help in the consolidation process.
The idea of bank consolidation was discussed at length during the ‘Gyan Sangam’ bankers’ retreat at Gurgaon last week.
Top finance ministry officials, bankers and Reserve Bank of India (RBI) officials were present during the discussions.
Merger between the banks will be based on geographical and technological synergies, human resources and business profile, among others.
Consolidation among public sector banks has been under discussionfor about a decade now.The previous United Progressive Alliance (UPA) government also wanted consolidation among public sector banks but had maintained that such a proposal should come from bank boards.
However, no bank went ahead with such a proposal, formally. There are 22 public sector banks in the country apart from five associate banks of State Bank of India. The present National Democratic Alliance (NDA) government has looked at the consolidation process differently and initiated it, bankers said.
Interestingly, during last year’s Gyan Sangam in Pune, bankers had opposed the idea of consolidation among public sector banks on the ground that the financial health of most of the banks had deteriorated. Hence, no bank was ready to absorb even a weaker institution.The mood at in this year’sGyan Sangam was different, bankers said. “The tone was set from the beginning. It was not a question of whether to consolidate or not, rather how to consolidate,” said a banker who attended the retreat.
“We were given the choice of either merging with other bank or to perform without the support of capital infusion from government,” said another banker. He said it will be difficult for public sector banks to survive without government capital.
The financial performance of public sector banks reflected a sharp deterioration after the RBI conducted an Asset Quality Review (AQR). During the review, the central bank’s inspectors found that many accounts, which ideally should have been treated as non-performing, were not classified so by the banks. The RBI then directed the banks to classify those accounts as non-performing and provide accordingly during the October-December and January-March quarters. As a result, as many as 11 public sector banks including Bank of Baroda, IDBI Bank, Bank of India and Indian Overseas Bank reported losses last quarter. The current quarter will be equally challenging for many banks.
“Things have changed since the AQR,” another banker pointed out. “There are many banks which will find it difficult to survive without capital infusion from government. If a bank remains weak, then it will lose business. In such a situation, merging with a relatively stronger bank seems to be the only option.”
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