New Delhi / Mumbai: India on Wednesday approved a proposal to create a ministerial panel to accelerate the consolidation of public banks as part of its efforts to boost credit and economic growth.
Prime Minister Narendra Modi will appoint panel members, who will oversee the proposed mergers of banks’ boards of directors, Finance Minister Arun Jaitley said after a cabinet meeting.
New Delhi has a majority stake in 21 lenders, accounting for more than two-thirds of banking assets in Asia’s third-largest economy.
But these banks also account for the lion’s share of more than $ 150 billion in acute assets that afflict the sector and require $ 1 billion of fresh capital over the next two years to meet Basel III’s global standards.
Banking sector reforms are important a Modi management board to boost credit growth, which slowed down decades decades as banks fight bad loans.
After the main lender, State Bank of India merged with its five subsidiary banks and also supported a lender niche audience for women earlier this year, authorities said other deals are planned.
“The goal is to create strong banks,” Jaitley told reporters, adding that decisions would be based solely on “business considerations.”
The minister also said that the burden of opening such proposed merger would be on the boards of banks.
Local rating agency CRISIL, a unit of Standard & Poor’s, said the new mechanism was an important first step towards the start of the consolidation process.
Although analysts and investors have welcomed the government’s plan to have fewer but more banks, they are skeptical about the benefits of merging two or weaker or lower banks with a stronger bank. What could force To the strongest entity.
Bank employee unions also opposed merger proposals on concerns that could lead to job losses. One million banking workers watched a one-day strike against bank mergers on Tuesday.
Nine of the 21 public banks recorded a net loss for the year ended in March. Thirteen reported losses during the previous year.
The overdue portfolio in the state’s banking sector has more than doubled in the last two years and accounted for 12.5% of total loans at the end of March.
Including restructured loans, fully underlined assets exceeded 15%, according to central bank data. Public banks as a group posted a negative return on assets at the end of March, the central bank said.
Shares of state lenders rose after cabinet approval with the state’s skilful banking index, up 2.1 percent in the Mumbai market, which gained 0.9 percent.
Punjab National Bank, the second publicly-owned asset lender, gained 3.4%, while Bank of Baroda No.3 added 1.2%. Canara Bank rose 2.9 percent.