Aug 30: The government seems to be inching closer to getting the public sector banking industry consolidated. According to people aware of the matter, the Reserve Bank of India has been asked to come up with a list of candidates for merging the 21 public sector banks in the country. The move is being made to strengthen the banking network in the country that has been facing issues of increasing bad debt.
The finance ministry is said to have asked the central bank to prepare for the initial list of the banks for merging. Besides, the central bank has also been asked to suggest a time frame for the consolidation. With the move, the government is aiming to bring down the number of lenders in the country that would help them become better-capitalized.
It’s also believed to improve the regulatory oversight over the banks. At present, India is countries with highest bad-loan ratio in the world, and is only behind Italy among the world’s ten largest economies. Apart from the concern about bad-debts, the central bank has also recently expressed worries about the jump in overall frauds in the banking sector, which rose to Rs41,000 crore in 2017-18 from Rs23,000 crore in the previous year.
Last month, Bank of Baroda outgoing chairman Ravi Venkatesan has opined that government must get state-backed lenders consolidated to avoid losing more market share to private players. Around 70% of the new deposits were contributed by private banks during the last fiscal year. Public lenders have been dependent on government for new capital, with over 51% of their shares being held by the state.
Finance Ministry and RBI haven’t yet responded to the new development.