On October 30, 2017, Union Government set up an alternative mechanism panel headed by Finance Minister Arun Jaitley, to consider and oversee mergers among the India’s public sector banks.
Suggestion to merge banks in India has been floating around since more than two decades. First such suggestion came up in 1991 when M. Narasimham, former Governor of Reserve Bank of India (RBI), recommended the government to merge banks into a three-tiered structure.
- On similar lines, in 2014, a committee headed by a former Axis Bank Chairman, P. J. Nayak recommended that Government’s stake in public sector banks should be transferred to an alternated entity in order to improve the functioning of these banks.
- In August 2017, Union cabinet gave its approval to set up an alternative mechanism for providing in principle approvals to merger proposals.
- Alternative mechanism eliminates the need to approach Cabinet Committee on Economic Affairs (CCEA) at each stage for clearance during the merger process in Central Public Sector Enterprises CPSE.
More Information about Panel on PSU Bank Mergers:
Union Railway and Coal Minister, Piyush Goyal and Union Defence Minister, Nirmala Sitharaman are also the members of this alternative mechanism panel on PSU bank consolidation head by Mr. Arun Jaitley.
- It is expected that on account of merger, public sector banks will not only achieve economies of scale and operational efficiency but will be able to manage risks in a better way.
- In future, this consolidation will also prevent multiplicity of resources being spent in the same area.
- Union Government has exempted consolidation among public sector banks from the scrutiny of Competition Commission of India.
Current Status of PSU Banks in India:
At present, there are 21 public sector banks in India. Together, these banks have 70% market share.
- However, they also account for over 80% non-performing asset in the Indian banking system.
- The first consolidation in Indian public sector banking space took place in April 2017, when State Bank of India merged operations of five of its associate banks and Bharatiya Mahila Bank with itself.