Modi government’s plan to have few large banks rather than having many smaller ones have proposed a new idea for banks like Punjab National Bank And Bank Of Baroda to may take over some small lenders. Earlier this month, SBI got merged with Bharatiya Mahila Bank and other 5 associated lenders and thus has become No.1 of its type.
This hasn’t been official yet, but the situation is on proposal stage.
“We may start with some low-hanging fruit. For example, Punjab & 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, like Indian Overseas Bank,” says a senior finance ministry official.
Such a plan is considered in view as the finance ministry these days is following up with RBI regarding non-performing assets in the country. RBI has even made its norms strict under the Revised Prompt Corrective Action framework, which may enable the lenders to matchup with other institutions if they don’t stand in the line of proper requirements.
“Primarily, we are only going to be matchmakers, but, yes, if RBI feels that such action is necessitated in terms of regulatory requirements, we may act accordingly,” said the official.
“All these plans are fluid, as we also need to take clearances from the Competition Commission, as followed in the case of Bharatiya Mahila Bank and SBI merger,” he said.
The government came up with a plan in 2015 named Indradhanush in which the government announced to infuse Rs 70,000 crore in state run banks till 2019. Under this the banks had to raise Rs 1.8 crore from the market. So the government wishes the large banks to explore the same. The larger banks are expected to tap the market as a huge capital is required by the government to fuel up because this fiscal only Rs 10,000 is being allocated to banks as capital infusion.
United Bank of India, Indian Bank, Bank of Maharashtra and Central Bank and other 3 public sector banks are also being pushed to tap the market in the next 5 months for their 25% public shareholding deadline.
Banks Board Bureau chief Vinod Rai in an interview with Reuters last month said that “two large Mumbai-based banks” could merge in the current FY. This can be considered as a step towards development in the sector.
