Finance Ministry Seeks NITI Aayog Suggestions On PSU Bank Consolidation

The finance ministry has sought help of the government think-tank NITI Aayog and other global consultancy firms to examine the possibility of the next round of consolidation of PSU banks with an aim to create only a few lenders of global size and scale.

A detailed report is expected from the NITI Aayog in about a month, a senior government official told PTI, adding, some global consultancy firms are also examining the issue.

The NITI Aayog report will set tone and tenure of the roadmap for consolidation in the future, the official said. The government intends to create 4 to 5 banks of the size of SBI, the official added.

There are factors like regional balance, geographical reach, financial burden and smooth human resource transition that have to be looked into while taking a merger decision, the official said, adding, that a very weak bank should not be merged with a strong one.

"There are some low-hanging fruits. For example, Punjab and Sind Bank can be merged into Punjab National Bank. Big lenders like Bank of Baroda can take over some turnaround banks in the southern region such as Indian Overseas Bank. Dena Bank could be merged with some large South Indian bank," the official explained.

The merger process will get a boost with the likely improvement in the non-Performing Asset (NPA) situation over the next two quarters, the official said, adding that some movement on this front would begin soon.

Toxic loans of public sector banks rose by over Rs 1 lakh crore to Rs 6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.

Finance Minister Arun Jaitley has also said at several occasion that India needs 5-6 banks of global size and scale and further consolidation in the banking sector will be done at appropriate time.

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The merger proposals in the banking sector will require clearance from the Competition Commission of India (CCI), the ministry official added. In the last consolidation drive that saw the light of day earlier this month, CCI nod was needed only in the case of merger of the Bharatiya Mahila Bank (BMB) with SBI. There was no such requirement for merger of associate banks with SBI as they were part of the parent. Five associates and BMB became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world. State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), besides BMB, were merged with SBI.

With the merger, the total customer base of the SBI reached around 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country. The merged entity began operation with deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.

The government in February had approved the merger of these five associate banks with SBI. Later in March, the cabinet approved merger of BMB as well. SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged with it.