The government plans to initiate the next round of public sector bank mergers after analysing a detailed study that has been commissioned on the outcome of amalgamation in state-run banks, a senior finance ministry official said.
The aim is to have 4-5 large banks as large and strong as the country’s biggest lender State Bank of India(SBI), said the official who requested anonymity.
At present, there are seven large public sector banks and five smaller ones.
“Concerned banks have been asked to submit their feedback by month end. We will be holding wider consultations through Indian Banks’ Association (IBA) and with other stakeholders before firming up the future strategy,” the person said.
In 2019, the government had announced merger of 10 nationalised banks into four large lenders, thereby bringing down the number of public sector banks (PSBs) to 12. There were 27 state-run lenders in 2017. The merger had come into effect starting April 2020.
Earlier this week, a report on privatisation of PSBs by National Council of Applied Economic Research (NCAER) made a case for privatisation of all PSBs except SBI.
The report authored by NCAER’s director Poonam Gupta and economist Arvind Panagariya noted that PSBs have mostly lagged behind private banks in all the major indicators of performance during the last decade. “They have seen soured loans and operational costs soared,” it said. “These PSBs have also attained lower returns on assets and equity than their private sector counterparts.”
The finance ministry official, however, said state-owned banks have improved their performance on all major indicators in the last few years and in FY22 doubled their profits.
“The government will continue to maintain its presence in this sector although we will like to bring down the number to around 4-5 from existing 12 banks,” said the official quoted above.
The government will likely introduce a bill in the upcoming monsoon session of parliament to make amendments to facilitate privatisation of state-run banks.
