New Delhi, August 23: In the context of massive accumulation of bad loans by state-run banks, the Union Cabinet on Wednesday gave an “in principle” approval for their consolidation by merging some of the public sector lenders, Finance Minister Arun Jaitley announced.
“The cabinet approved the constitution of an alternate mechanism that will oversee proposals with regard to consolidation of banks, which will come from the PSBs (public sector banks),” Jaitley told reporters here following the cabinet meeting.
“As of today, there are 20 PSBs plus the State Bank of India (SBI),” he said, adding that the SBI had recently concluded the merger with its associate banks and become a larger consolidated entity.
“If any other PSB board gives a consolidation proposal, to oversee that proposal an alternative mechanism will be in place to give in principle approval for the proposal of the banks for a scheme of amalgamation,” Jaitley said.
Explaining that such an alternative mechanism “enables quick facilitation of decisions”, Jaitley said the constitution of the committee would be made by the Prime Minister.
“The decision regarding creating strong and competitive banks will be solely based on commercial considerations,” he said.
“Our experience of consolidation has been positive. It increases the entity’s commercial strength, the ability to absorb market shocks,” he added.
The cabinet approval comes in the face of banking operations across the country being hit on Tuesday as over 10 lakh bank employees in more than 1,30,000 branches pan-India struck work protesting against reforms in the banking sector, including proposals of merger of state-run banks.
Bank stocks in demand, surge up to 4%
Bank stocks Wednesday rose up to 4 per cent after the government decided to set up an alternative mechanism to oversee the proposals for consolidation of public sector lenders.
Shares of Punjab National Bank gained 3.26 per cent, Indusind Bank rose by 2.21 per cent, SBI (1.70 per cent), ICICI Bank (1.67 per cent), HDFC Bank (1.29 per cent), Federal Bank (1.19 per cent) and Kotak Mahindra Bank (1.08 per cent) on BSE.
Bank of Baroda advanced by 1.08 per cent, AXIS Bank (0.77 per cent) and Yes Bank (0.52 per cent).
The BSE bank index also went up by 1.39 per cent to end at 27,455.08. Among others, Allahabad Bank surged 4.21 per cent and Bank of India rose by 3.12 per cent. “Banking stocks grabbed investor’s attention on account of cabinet nod to oversee PSU banks consolidation,” said Vinod Nair, Head of Research, Geojit Financial Services Ltd.’
