Mega banks for a developed India? Sitharaman to set up high-level committee on banking

The board approval for the merger of PFC and REC came after an announcement made in this regard in the Budget on Sunday.

• Government to set up High-Level Committee on Banking for Viksit Bharat soon
• Committee to draft blueprint for mega-lenders to fund India's development needs
• PFC board gives in-principle approval for merger with REC Limited

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The government will soon constitute a High-Level Committee on Banking for Viksit Bharat to draw up a blueprint to create mega-lenders capable of meeting the financing needs of a developed India, Finance Minister Nirmala Sitharaman said.

"We want the committee to tell us what kind of things we need to do so that banking is made available for funding Viksit Bharat," she told PTI Videos in an interview.

Asked if it would suggest a merger of public sector banks, Sitharaman said one should not narrow it down like that.

"It is for India's banking sector to be made big enough, big enough in the sense, made or primed to take care of Viksit Bharat funding. You have to reach Viksit Bharat destination...it (Viksit Bharat) needs money, it needs financing, it needs credit, it needs banking facility to reach the common man." When asked about the timeframe for formation of the committee, she said, "We will do it at the earliest".

"I propose setting up a 'High Level Committee on Banking for Viksit Bharat' to comprehensively review the sector and align it with India's next phase of growth, while safeguarding financial stability, inclusion and consumer protection," she had said in the Budget speech on February 1.

To achieve scale and improve efficiency in the public sector NBFCs, as a first step, the Budget also proposed to restructure the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

"A lot of work has happened in the ministry concerned. They have come up with this expectation. Let's see how they play it out," she said, when asked if a merger is on the cards.

REC is a subsidiary of state-owned power sector lender Power Finance Corporation (PFC). Both entities play a key role in funding power generation, transmission and distribution projects.

In March 2019, PFC completed the acquisition of a majority stake in REC Ltd by transferring Rs 14,500 crore to the government.

PFC acquired 103.94 crore shares, constituting 52.63 per cent stake, held by the government in REC, along with the management control. The acquisition price was worked out to Rs 139.50 per share. This stake acquisition came following the in-principle approval from the Cabinet Committee on Economic Affairs.

Both PFC and REC are Navratna central public sector enterprises, and this acquisition was a step toward consolidating companies operating in the same space.

Last week, the PFC board gave in-principle approval for the merger of the non-banking finance company REC Limited with itself.

The board approval for the merger of PFC and REC came after an announcement made in this regard in the Budget on Sunday.