The Union Cabinet on Wednesday gave its in-principle approval for the merger and consolidation of public sector banks, reported ET Now. The Cabinet gave the go-ahead to set up a mechanism to carry out such mergers. The move is aimed at improving the efficiency of public lenders, which are burdened with bad loans, and also saving capital.
This comes after banking operations were affected on Monday as employees of public sector banks took part in a nationwide strike, protesting against the consolidation of PSU banks. The United Forum of Bank Unions, which includes nine bank associations, had called for the strike, believing that merging public lenders would not be an employee-friendly move.
The Finance Ministry’s Principal Economic Advisor Sanjeev Sanyal had said on August 21 that the government wants to reduce the number of PSU banks to 10 to 15, the Hindustan Times reported. Currently, there are 21 public sector banks.
“Consolidation [of banks] will not be taken too far as speculated, since the whole system will then break down if even one of them fails,” he said. “Eventually, the number of PSU banks will come down to between 10 and 15. It will be done purely on a commercial basis.”
Banks in the public sector unit wrote off a record Rs 81,683 crore in bad loans for the 2016-17 financial year. Non-performing assets in 2015-16 were Rs 57,586 crore, 41% less than the latest figures of the Finance Ministry. The combined profits of the banks in 2015-16 was Rs 474 crore.
This was despite the Finance Ministry directing banks to take measures against NPAs, including changing loan recovery laws and empowering the Reserve Bank of India to rapidly start insolvency processes against stressed assets.