Banks Board Bureau discusses consolidation among PSBs

As part of revamp of public lenders, a proposal was made to consolidate the existing 27 PSBs into ten

The Banks Board Bureau, headed by former Comptroller and Auditor General Vinod Rai, met for the first time on Friday to discuss consolidation among public-sector banks (PSBs) and board-level appointments, as well as means of recapitalising the lenders.

The meeting was held at the Reserve Bank of India (RBI)’s Mumbai central office and was addressed by Jayant Sinha, minister of state for finance.

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While RBI Governor Raghuram Rajan and Deputy Governor S S Mundra were present at the start of the meeting, the core members of the bureau — Rai; H N Sinor, former joint managing director of ICICI Bank; Anil Khandelwal, former chairman and managing director of Bank of Baroda; and Roopa Kudva, former chief of rating agency Crisil — continued with the meeting for a few more hours. The bureau is a temporary arrangement, to be transitioned into a Bank Investment Company (BIC) that would act as a holding company for all government-owned lenders. The BIC will also be responsible for capital infusion in PSBs.

While the core members of the bureau refused to speak to the press, Sinha told reporters later in Delhi that the board discussed bank consolidation, tackling bad loans in bank books, and capital infusion in state-owned banks.

Sinha said the proposed transformation of IDBI Bank into a privately-owned lender was underway. Finance Minister Arun Jaitley had said in his Budget speech that the government would bring down its stake below 50 per cent in IDBI Bank and look into ways to consolidate existing banks.

“We have now undertaken this exercise of recapitalisation of banks within the existing resources. I am trying to find additional resources for that purpose, to strengthen the banks. Once they are strengthened, I’m going for consolidation of some of the banks,” Jaitley had said at an International Finance Corporation event in New Delhi earlier this week.

It is widely expected that India’s 27 public sector banks (including State Bank of India subsidiaries) would be brought down to around 10 banks as weak lenders would be merged with, or made subsidiaries of, stronger ones. The bureau, Jaitley said in his post-Budget interaction with the press, would spell out various modes of how to go for the consolidation.

PSBs have enormous amount of bad debt, lowering profitability and eroding their capital base. RBI’s asset quality review exposed further bad debt and banks reported ugly numbers in their December 2015 quarter results. The Punjab National Bank, for instance, showed a 93 per cent decline in profit after provisioning for these, and non-performing assets rising to 8.5 per cent of all loans. State Bank of India saw 62 per cent decline in net profit and fresh slippage of Rs 20,700 crore.

Jaitley had said in Budget 2016-17 that the government was moving towards privatising IDBI Bank. Capital infusion of Rs 25,000 crore in 2015-16 was also not enough for the PSBs. The bureau is expected to discuss a way forward.