Consolidation govt policy; need global-sized institutions: FM

The proposal of SBI to merge its five associate banks with itself and acquire Bharatiya Mahila Bank is in line with the government's policy of consolidation as the country needs global-sized institutions, Finance Minister Arun Jaitley today said.
"Consolidation was part of the Indradhanush package. I had announced about consolidation in the Budget... Therefore, the banks have acted. It is accordance with the government's policy," Jaitley said.
Yesterday, the country's largest lender State Bank of India (SBI) proposed merger of its five associate banks and the three-year old Bharatiya Mahila Bank (BMB) with itself and sought the government's approval for the same.

"Let the proposal come to the government. I had already announced consolidation as the road map in the Budget itself. And therefore, I think the larger question (is) that India doesn't need so many banks in the public sector," Jaitley said in an interview to CNBC TV 18 channel.
"And therefore, let larger global-sized institutions come into existence without adversely impacting the employees' working conditions. And if it (the proposal) comes to us, I will certainly look at that. And I will look at it very positively."
He said there is a need to reduce the number of banks by consolidating some of them.

Further, he said the banks have given their own opinion and if some banks have a contrarian view, the government will "certainly respect that, look into it and take that into consideration".

According to SBI Chairman Arundhati Bhattacharya, with the merger, the balance-sheet size of the bank will soar to Rs 37 lakh crore, from Rs 28 lakh crore currently.
The five associate banks that are under proposal to be merged with the banking major are State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.
Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed on bourses.

Asked if more lenders are expected to come out with such consolidation plans, Jaitley said the immediate priority will be to improve the stress situation and their economic health.
Stating that high denomination currency has ceased to be
a legal tender, Jaitley admitted that some more legal steps will be required later on if one is to extinguish that.
"It is important to realise what was the Indian normal for last 70 years. It had almost become the Indian normal to have a parallel economy, to have a shadow economy. It was almost a way of life," he said.
With large currencies in circulation outside the banking system and a narrow tax base, banks were "becoming challenged if not vulnerable".

"And I think it's not the normal in which we are functioning. This one decision now redefines the Indian normal, there is a new Indian normal," he asserted.
The finance minister also made a point that just as the telecom revolution which had not been envisaged in India but took place, the new normal is going to be different 5-8 years down the road.
"We are going to live in an entirely different kind of an economy," he said.
On big challenges Indian economy faced, Jaitley pointed to the limited ability of banks to support growth because of NPAs and their "lending abilities are suspect".

He also spoke of the private sector not bringing in investment, which is being compounded by a global slowdown.
"Now let's see the impact of this decision in medium and long term. It has suddenly pushed up the ability of banks to lend at a cheaper rate. The ability of the Indian banking system to support growth, support economy, support growth economy had become extremely doubtful," he remarked.
Banks, he said, are suddenly flush with all low-cost funds. "So, these low-cost funds are going to be lent to businesses, trade, agriculture, infrastructure at a much lower rate today. And the private sector, which was feeling stressed, this has a direct impact," the finance minister added.

"In the long term, it is going to change the way traders trade, how we manage the household budget. It would bring more transactions into the banking system, we have a cleaner and bigger economy, a bigger taxation system -- and this one decision redefines the Indian new normal.