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In a bid to strengthen the banking system laden with bad debt, the government has asked the Reserve Bank of India (RBI) to prepare a list of public sector banks that can be merged, according to a report by Bloomberg.
The finance ministry has also asked the central bank to suggest a timeframe for the consolidation, the report suggests. The move is aimed at creating better capitalised and fewer lenders and improving regulatory oversight.
Government-controlled lenders are estimated to be holding 90 percent of the non-performing loans and 11 out of the 21 PSBs are operating under an emergency programme overseen by the central bank, the report adds.
The report cites Ravi Venkatesan, outgoing chairman of Bank of Baroda, as saying that state-owned lenders need to consolidate to avoid losing more market share to competitors in the private sector.
Moneycontrol could not independently verify the report.
After Italy, India reportedly has the highest bad debt ratio among the world’s top 10 economies.
In an interview to CNBC TV18 in February 2017, Finance Minister Arun Jaitley had said he was confident that State Bank of India (SBI) stands to gain a lot under the government's public sector consolidation framework.
In March 2016, SBI had announced its merger with its five associate or subsidiary banks and Bharatiya Mahila Bank (BMB) after the government gave its green light for the merger.
On April 1, 2017, SBI merged with five of its associate banks — State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP).
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