Cabinet approves PSU banks' merger

 The Union Cabinet on Wednesday gave an in-principle approval to plans for merging public sector banks with a view to create strong and competitive banks.

The Cabinet meeting chaired by Prime Minister Narendra Modi decided to set up an alternative mechanism through which the consolidation of state-owned lenders would be taken up. Finance Minister Arun Jaitley said, the decision to merge banks will solely be based on “commercial considerations.”

“As of today, there are 20 PSBs plus the State Bank of India. If any other PSB board gives a consolidation proposal, to oversee that proposal a miniterial committee will be in place to give in principle approval for the proposal of the banks for a scheme of amalgamation,” Jaitley said.

He said the names of ministers in such a committee will be decided by the Prime Minister. Jaitley said consolidation would improve the capacity of banking system to absorb shocks that the market may cause to it.

To a question on whether there could be a merger in the current financial year itself, Jaitley said he hoped so. On whether the government would nudge banks to consolidate, Jaitley nodded in the affirmative.

In May 2016, the government took action to consolidate public sector banks, announcing the amalgamation of six banks into the State bank of India. The merger was completed in record time, unlike earlier mergers of State Banks of Indore and Saurashtra, sources said.

SBI now has about 24,000 branches, over 59,000 ATMs, six lakh POS machines and over 50,000 business correspondents. Nearly 70% of SBI’s network lies in rural and semi-urban areas. The merger has turned SBI into one of the largest global banks.