C Rangarajan, the former governor of the Reserve Bank of India (RBI), has stated that bank mergers should be strictly based on prevalent needs and also stated that the initiative should be taken by the Indian banks themselves. He stated that the merger initiatives were expected to be driven by the banks and there must be a definite need for the same. He highlighted how bigger banks globally are taking up cooperation as a blueprint for future growth.
The State Bank of India (SBI) recently merged five of its associates to form a mega entity and the Indian Government is looking to consolidate some more banks with the mission of creating five global-sized banks in the country. The Bharatiya Mahila Bank and five associates became part of the SBI (State Bank of India) from the 1st of April, 2017 and this helped SBI earn a place amongst the top 50 banks across the globe.
Rangarajan also spoke about the NPA resolution, stating that the entire clean-up has to be executed with precision and some haircuts were inevitable for banks. He stated that with these haircuts, the loans would become performing assets and some adjustments were required since one-time adjustments have always been done earlier. The NPA size has also turned huge and this step is required according to him. Without finding any solutions for the NPA problem, the country will not be able to progress with regard to boosting overall investment and the economy according to him.
On the sidelines of a NABARD event, Rangarajan stated that the entire resolution process for NPAs will require a year to be completed. The RBI has already identified 12 accounts for which insolvency proceedings will be taken up and each of these accounts have more than Rs.5,000 crore in outstanding loans and this amounts to a whopping 25% of the entire NPA volumes for Indian banks. These 12 accounts will fall under the purview of the Insolvency and Bankruptcy Code (IBC) proceedings according to the RBI. The Banking sector is currently dealing with NPAs exceeding Rs.8 lakh crore and out of this, Rs.6 lakh crore in NPAs is there with public sector banks.
An Internal Advisory Committee or IAC has been constituted by the RBI and this has several independent board members. This committee will offer valuable advice in terms of cases that may be taken into account for resolutions.