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In-principle approval given for mergers of public sector banks

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In-principle approval given for mergers of public sector banks

There may be light at the end of the tunnel for the merger process for public sector banks since the Cabinet has reportedly granted its in-principle approval for the establishment of an alternative framework for executing the entire consolidation process. A GoM or Group of Ministers will be set up for overseeing this public sector bank merger procedure. Sources have stated that while this initial approval has been granted, the names of the public sector banks to be merged will be provided to the GoM.

The names will be decided on the basis of four major aspects, namely capital adequacy ratio, bank profit, comparable quality of assets and similar geographical coverage. The merger will be fast tracked under the Sections 9 (2) c and 9 (6) of the Banking Companies Acquisition and Transfer of Undertakings Act of 1970. All banks except for IDBI Bank and the State Bank of India come under the purview of this section.

SBI has already completed a huge merger in April, 2017 by absorbing five of its associates and the Bharatiya Mahila Bank, creating a behemoth which has found a place in the list of top 50 global banks. SBI Chairman Arundhati Bhattacharya has already stated that mergers should lead to greater customer benefits along with generating higher shareholder value. Mergers should also lead to a reduction in overall dependence on garnering government resources by way of capital.

RBI Governor Urijit Patel has also stated that the central bank is in talks with the Government for working out several measures which will help public sector banks come up with the necessary capital including mergers. These measures may encompass dilution of holdings of the Government, raising capital from the market, added infusion of capital from the Government, selling non-core assets and mergers which are based on strategic reasons according to Patel.

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