The government may announce the merger of certain public-sector banks (PSBs) as early as this fiscal, and it has expedited the consultation processes for this purpose, official sources told FE. The factors that would be looked into while the government undertakes consolidation exercise include financial burden (including stressed assets), human resource transition, regional balance, cultural ethos and geographical reach. NITI Aayog has already been asked by the finance ministry to prepare a road map on the consolidation of PSBs, exploring various possibilities and models to create only a few large banking entities. Consultancy firm McKinsey is learnt to have given a presentation to senior finance ministry officials recently on the experiences of similar bank consolidation exercises done in Europe, Latin America and other parts of the world. Once the ministry gets all the inputs, it will take a call on consolidation, in consultation with the Reserve Bank of India (RBI) and the Competition Commission Of India (CCI), said the official. The approval of the CCI is also required to give the impression that such a consolidation exercise will not distort competition, he added. Finance minister Arun Jaitley has already said that India needs 5-6 large PSBs of global size and that a large consolidation in the banking sector would be done at an appropriate time. For instance, a lender like Bank of Baroda can take over some banks in the southern region that have turned around or are in the process of turning the corner such as Indian Overseas Bank. Similarly, Dena Bank could be merged with some large South Indian bank, according to sources.
Already, five associates and the Bhartiya Mahila Bank became part of State Bank of India from April 1. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore were merged with SBI. Further merger processes will pick up pace once the bad loan crisis starts easing. As of December, 2016, commercial banks had stressed assets (both gross non-performing assets and restructured standard advances) worth `9.64 lakh crore, with most in public-sector banks. The massive bad debts have led to a twin balance sheet problem — overleveraged companies and bad-loan-encumbered banks—severely denting investments in the economy.