Mega-merger of PSU banks: SBI Chairman says government recognises importance of robust banking system

The announcement on the mega-merger of 10 PSU banks into four on Friday by Finance Minister Nirmala Sitharaman has been termed as a positive move by SBI Chairman Rajnish Kumar in achieving the goal of $ 5 trillion economy. The SBI Chairman said, “..Announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer."

He further stated that the announcements also "underline the fact that the government recognizes the importance of a robust banking system in achieving the goal of $ 5 trillion economy as bigger banks will be better armed to meet the credit needs of a fast growing economy like ours."

The decision to have separate mechanism for sanctioning and monitoring of big loans will ring-fence the Banks against potential frauds, he said, adding that "the decision to empower Bank Boards and operational flexibility in hiring from the market will prioritise robust risk management practices in decision making”.

Notably, the Punjab National Bank, the Oriental Bank of Commerce and the United Bank have merged to become the second-largest PSB, while the Canara Bank and the Syndicate Bank will amalgamate to make the fourth-largest PSU bank entity.

Also in the series, the Union Bank will merge with Corporation Bank and Andhra Bank to become the fifth-largest PSU bank and the Indian Bank and the Allahabad Bank merge to be the seventh-largest. 

Post consolidation, the number of PSU banks will come down from 27 to 12 and this, according to Sitharaman, was "the right number of PSU banks to have". 

The latest announcement comes after a similar exercise was conducted with the State Bank of India when it was merged with 5 other banks.

Watch Zee Business Live TV

Just a year back, the government had amalgamated the Bank of Baroda with two other banks which resulted in a strong result in strong retail loan growth, robust CASA (current account savings account) and bigger profits.