Govt. to set up panel for consolidation of state-run banks

Union Finance Minister Arun Jaitley on Saturday said his government would constitute an expert panel to devise a strategy for consolidation of state-run banks.

More than two dozen state-run banks dominate India's banking sector with over two-thirds of assets. They also hold close to 85 percent of bad loans in the sector.

Jaitley said that the banks, during a two-day annual brainstorming event, had favoured the idea of consolidation.

"What is the strategy for this consolidation? The bankers themselves have suggested an expert group to immediately go into this issue. We will consider that suggestion," Jaitley said here.

He also said the government was considering an employee stock option plan for the state-run banks.

"The government independently is considering -- again at very advanced stage -- the whole idea of e-ops (employee stock option) for bank employees. There has been a long standing demand and it is receiving our active consideration," Jaitley added.

Jaitley, however, made it clear that the government would not write off any loan.

"The loan structure has been changed. Neither have we waived off any loan nor will we write off any loan," Jaitley said.

A recent surge in bad loans at state-run lenders after their regulator ordered a clean-up has led rating agencies to suggest banks will need more capital support from the government to cover losses and meet Basel III global banking rules.

The government plans to provide state banks with new capital in the next financial year towards a sector-wide bailout that the government estimates will cost $ 26 billion over four years.