The finance ministry is considering clearing one more proposal of merger in the public sector banking space by the end of this financial year, enthused by State Bank of India's (SBI) success story, a senior government official said.
Five associate banks and Bharatiya Mahila Bank became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world. Now, the finance ministry is looking to replicate the model in the case of other state-run banks so that they reach critical mass to compete with global peers.
Any decision in this regard will be based on commercially prudent parameters, the official told PTI, adding that if the bad loans situation gets better, there could be one more merger towards the end of this fiscal.
Toxic loans of public sector banks rose by more than 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 on several occasions said India needs five-six banks of global size and scale and further consolidation in the banking sector will be done at an appropriate time.
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Future merger proposals in the banking sector will also require clearance from the Competition Commission of India (CCI) to see if the merged entity is going to create a monopoly.
In the last consolidation drive that saw the light of day in April, 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.
The finance ministry has sought help of the government think tank NITI Aayog and global consultancy firms to examine the possibility of next round of consolidation of PSU banks with an aim to create a few lenders of global size and scale.
NITI Aayog's report is expected to set tone of the roadmap for consolidation in the future.
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