The Centre late on Thursday dashed off a letter to public sector banks asking them to start the merger process immediately and their respective boards to take up the issue. The government said the approval requirement of Competition Commission to expedite mergers among PSBs had been done away with. According to senior bank officials who received the communication,the government cited the Narasimham committee report and highlighted the need for large-sized bank that could fund the huge infrastructure need of the country. Bankers said this was the first time in recent history that an official communication had come from the government to the banks asking them to start the merger process.
Larger framework
The Centre has provided a broad framework to the banks to take the merger exercise forward. According to the framework, once the board approves the merger plan, it has to be sent to the ‘alternative mechanism’approved by the Union Cabinet last week. Banks have also been asked to seek the banking regulator’s view regarding their proposal. SBI Caps has also been given the mandate to identify synergies among the banks that could be merged. “The government wants the merger proposal to come from the bank boards,” said a senior public sector banker, on condition of anonymity.
Bankers said the government had also started preparing the ground to remove certain hurdles for consolidation, such as doing away with the approval from Competition Commission.
Some bankers said the government would wait till the Q2 results, which will be out by the first week of November, before finally deciding which bank will be merged with whom.
While the government wants the proposal for the merger should come from the bank itself, bankers said it is to be seen how many banks actually send such a proposal because it will mean one of the chief executives will lose his/her job.
“At this point, we do not know whether it is an order or it is voluntary for us to propose merger,” said the chief executive of an another bank regarding Thursday’s communication. Another banker said weak banks do not have a choice but to merge with stronger banks as the former’s growth will be impacted due to weak balance sheet.
The move comes at a time when banks, mainly public sector that controls 70% of the market, are reeling under the pressure of asset quality which has depleted capital. Gross non-performing asset ratio in the banking system was 9.6% and stressed asset ratio at 12%, as on March end.