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The government has directed public sector banks (PSBs) to consolidate their overseas operations against the backdrop of the Rs 127 billion letters of undertaking (LoUs) fraud in Punjab National Bank. The development means many branches and offices of PSBs in foreign countries will either be shut down or merged with others.
“All 216 PSB overseas operations to be examined. Non-viable operations in the overseas market to be closed for cost-efficiency and synergy. Operations in the same geography to be consolidated,” Financial Services Secretary Rajeev Kumar tweeted on Thursday.
Giving further details, Kumar said, “PSBs will consolidate 35 overseas operations without affecting international presence in those countries. Sixty-nine operations (have been) identified for further examination.” Operations included branches, joint ventures, subsidiaries, remittance centres, and representative offices, he said.
Reacting to the decision, State Bank of India (SBI) Chairman Rajnish Kumar said banks would now have to relook at the business of these operations. He said the idea of rationalisation of PSBs’ overseas operations had been on the government’s agenda for some time now, adding that the largest bank of the country would continue to operate in foreign locations.
A senior public sector banker told Business Standard that the consolidation would be based on business assessment and would include options of swapping assets and liabilities with other Indian banks, scaling down presence in some places from branches to representative offices, and shutting down operations in cases of non-viability.
A BOB executive said Hong Kong, being the financial hub for Asia, would remain a key business centre and the bank would continue to strengthen business from one branch.
Hong Long and Thailand are part of its operations in South East Asia. “The decision to rationalise our presence is part of the review of our international operations,” the executive said.
Thursday’s announcements are the latest steps by the government as it deals with the fallout of the scam. Earlier, the fraud amount was said to be Rs 114 billion, but earlier this week PNB informed the stock exchanges that an additional amount of Rs 13 billion had been discovered to be part of the fraud.
On Tuesday, the finance ministry had directed PSBs to examine non-performing asset (NPA) accounts of more than Rs 500 million for possible fraud and report any cases of wilful default to the Central Bureau of Investigation (CBI). The ministry had also set a 15-day deadline for PSBs to put in place an effective system to address rising operational and technological risks.