Banks re-positioned for USD 5 trillion economy

New Delhi: A week after the booster dose to arrest the economic slowdown, Finance Minister Nirmala Sitharaman on Friday resorted to a mega merger of 10 public sector banks.

The minister hyped it as a major reform, claiming that it will usher in "a strong financial system." This is the second round of mergers that began in 2017: It has reduced the total number of government-run banks from 27 to 12.

To begin with, the Oriental Bank of Commerce and the United Bank of India have been merged with the Punjab National Bank, making it the second biggest entity after the SBI; likewise, the Allahabad Bank will merge into the Indian Bank; the Syndicate Bank will merge with the Canara Bank; and the Andhra Bank and the Corporation Bank will merge with the Union Bank of India.

Six banks that have escaped the merger are the Bank of India, the Central Bank of India, the Indian Overseas Bank, the UCO Bank, the Bank of Maharashtra and the Punjab and Sind Bank.

The process of consolidating PSU banks began in April 2017 when five associate banks had merged with the SBI and the Dena Bank and the Vijaya Bank had merged with the Bank of Baroda.

Finance Secretary Rajeev Kumar assured that there would be no retrenchment because of the mega merger; the staff will enjoy the service conditions that are the best among the merged banks and there will be improved mobility in terms of transfers from one state to another.In a tweet, he said:

"Big banks will set their eyes on the global market, middle level banks will become national and some banks will provide local leadership. "Other officials said there will be no disruption of services as had happened in the last merger in April.

The philosophy behind the mergers is to create strong national banks which clear the decks for India to become a USD5 trillion economy. Union Minister Nirmala Sitharaman, who was also present at the press conference, announced that the NPAs (non-performing assets) have come down from Rs 8.65 trillion in the quarter ending last December to Rs 7.9 trillion in the March quarter; and out of the 18 public sector banks, 14 are already making profit.

The finance minister also spelled out the recapitalisation plan: PNB will get Rs 16,000 crore, Union Bank of India Rs 11,700 crore, Bank of Baroda will receive Rs 7,000 crore, Canara Bank will get Rs 6,500 crore, and Indian Bank Rs 2,500 crore.

The minister said the boards are also being given mandate to reduce or rationalise the board committees and fix accountability for compliance of risk appetite framework.She also announced introduction of the SWIFT message system in all banks to prevent Nirav Modi kind of frauds.

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