Cabinet approves amalgamation of PSBs through alternative mechanism

Envisioning the consolidation of nationalised banks into more competitive units, the Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday gave its in-principle approval for Public Sector Banks (PSB) to amalgamate through an Alternative Mechanism (AM).

Union Finance Minister Arun Jaitley re-iterated the approval of a framework for the consolidation of public sector, while addressing a press conference post the Cabinet meeting here.

With the framework in place, the decision regarding creating strong and competitive banks would be solely based on commercial considerations.

It was notified that the proposal must start from the Boards of Banks, which would be considered for in-principle approval to formulate schemes of amalgamation and shall be placed before the Alternative Mechanism (AM). After this, the banks will take steps in accordance with law and the requirements of the Securities and Exchange Board of India (SEBI).

The Cabinet also stated that the final scheme will be notified by the Central Government in consultation with the Reserve Bank of India (RBI).

Earlier, in May, effective action to consolidate Public Sector Banks began to be taken by announcing the amalgamation of six banks into the State bank of India (SBI). The merger was completed in record time, unlike earlier mergers of the State Banks of Indore and Saurashtra.

The Cabinet's decision is expected to facilitate the creation of strong and competitive banks in the public sector space to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the state exchequer.