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Finance Ministry steps up efforts towards consolidation of public sector banks

NEW DELHI: The government is stepping up efforts towards consolidation of public sector banks (PSBs). The finance ministry has sent a letter to all PSBs asking them to provide business and financial details within a month to SBI Capital Markets, the investment bank that has been mandated to present possible and viable scenarios for bank consolidation.

“There were some banks which were reluctant on sharing their business details with an outside agency and perhaps that is why the ministry had intervened,” said a senior banker with knowledge of the matter.

Earlier, financial services secretary GS Sandhu had said that the government has asked SBI Caps to do a study on bank consolidation. “We have given them two assignments, one is on the recapitalisation and other on bank consolidation,” he had said. According to him, there had been various suggestions on the matter. The finance ministry’s push comes at a time when the country’s largest bank, State Bank of India, has put on hold its plan to merge any of its five associate banks.

“The government wants some movement on consolidation. Since SBI has not announced any plans, it (government) is trying to push smaller banks,” said an executive director of a state-run bank.

Of SBI’s associate banks, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed entities. The country’s largest lender was touted to merge either State Bank of Patiala or State Bank of Hyderabad with it in this financial year.

SBI has estimated Rs 32,831 crore as total capital requirement under the Basel III capital adequacy framework for all of SBI’s associate banks. Indian banks need to meet the Basel III guidelines in phases through 2018-19.

The government is keen that at least some preparatory framework is set up on consolidation in state-run banks given the huge fund requirements to meet the global guidelines. Consolidation is expected to increase the competitiveness of Indian banks globally and also ensure financial stability. It may become easier for the merged entities to raise resource. In his budget speech, finance minister Arun Jaitley had said that the government had received some suggestions for consolidation of PSBs. “Government, in principle, agrees to consider these suggestions,” he had said. As per the ministry’s estimates, state-run banks require Rs 2.4 lakh crore as equity by 2018 to meet capital requirements. The government has allocated a relatively paltryRs 11,200 crore for bank capitalisation in this fiscal year through March 2015.

“There are some broad parameters within which the banks should explore all options. The report on consolidation will help to set up a road map for merger in PSBs,” said a finance ministry official, adding that any merger proposals will be evaluated on the parameters of pan-India presence, business and information technology integration.

The government intends to keep its holding in PSBs at a minimum 52%. It has asked them to hive-off noncore businesses, such as insurance, or get them listed to raise resources.

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