Govt revives public sector bank merger issue

Plans 2-day brainstorm to draw blueprint for banking sector reforms

The central government has revived the issue of consolidation in public sector banks, an issue pursued by the previous government, too, albeit without much success.

Now, the matter will be taken up during a two-day meeting of public sector bankers in Pune. The meeting, being organised by the finance ministry, will be attended by Prime Minister Narendra Modi, Finance Minister Arun Jaitley, Reserve Bank of India (RBI) Governor Raghuram Rajan, and various finance ministry officials. Chairmen and managing directors of all public sector banks will also attend the meeting.

“The final objective will be to prepare a blueprint of a reform action plan, which could then be implemented by banks and the government,” said a press statement issued by the government.

The outline of the action plan will be presented to the Prime Minister, who will attend the meeting on January 3, the concluding day of the meeting. “Then, further deliberations will take place on this, in the presence of the PM,” the statement added. During his term as Prime Minister, this is the first time Modi will interact with bankers. Earlier, he was scheduled to meet bankers on December 5, but the plan was cancelled at the last minute.

The idea of consolidation among public sector banks was pushed by P Chidambaram, when he was finance minister under the United Progressive Alliance (UPA) government. While the UPA government supported the issue, it said proposals for mergers should come from bank boards.

Apart from consolidation, the January 2-3 retreat, named Gyan Sangam (knowledge confluence), will also discuss restructuring of public sector banks to increase efficiency and capitalisation needs.

RBI had appointed a committee under former Axis Bank chairman PJ Nayak for improving governance in the sector. The panel had recommended the government give up its control over these banks and reduce stake in these to less than 51 per cent. The committee was also critical about the dual regulation these banks faced — from RBI and the government — and suggested the government refrain from giving directives to these banks.

Other issues to be taken up for discussions are an effective risk-profiling and recovery mechanism, human resources, the use of technology in banking operations, financial inclusion, priority sector lending and interest-subvention schemes.