The proposal of merging the public sector banks will them gain efficiency and scale, Finance Minister Arun Jaitley said.
After the merger of country's biggest lender SBI and its five associate bank, the government has announced the consolidation of the Public Sector Banks.
Finance Minister Arun Jaitley on Wednesday made the announcement and said the Union Cabinet has given approval to the framework for consolidation of public sector banks.
The approval comes months after the SBI merger. The Cabinet nod has cleared the way for government's ambitious plan of consolidating PSUs to help them gain efficiency and scale.
“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 said in press conference after the Cabinet meeting.
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.
With the news of merger, the shares of PSUs witnessed a surge with the Nifty PSU Bank index gaining as much as 1.8% to 3,290.4 points.
According to various media reports, the government plans to create six public sector banks of global scale. The aim behind such move is to support the smaller struggling banks with the strong finances of the bigger ones.
The latest move came after the State Bank of India merged five of its associate banks and Bhartiya Mahila Bank with itself effective from April 1. The merged entity now has a deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.
Meanwhile, State Bank of India chairperson Arundhati Bhattacharya also called for more consolidation among the public sector banks, saying this could reduce their dependence on government for capital.
The merger of the state-run banks should open up more capital generation avenues, both internally and from market, for the merged entity, she said in an interview with the news agency PTI.
(With agency input)
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