Govt to push for mergers among small PSU banks

Written by Subhomoy Bhattacharjee | New Delhi | Updated: Aug 4 2014, 13:19pm hrs
BankingGovt will push for consolidation of the small public sector banks.
The government will use the arrest of Syndicate Bank chief Sudhir Kumar Jain to push for consolidation of the small public sector banks quickly.

GS Sandhu, secretary, department of financial services described the arrest of Jain as an extremely unfortunate development and said he will wait for the CBI report before deciding on a replacement for Jain.

The finance minister has been informed and my officers are in touch with the investigating authorities, he told The Indian Express. I cannot say whether the replacement will be from within the company, or from a larger bank outside but all options are open, he said.

Jain, the chairman and managing director of public sector Syndicate Bank was arrested by the CBI on Saturday evening for allegedly accepting bribes from a private sector company to get a higher loan from his bank. Five more people have been arrested in the case.

Jain was brought to Delhi on Sunday where the agency has asked for his further remand. As per government rules, a public sector or government employee stands automatically suspended from service if the person has spent 48 hours in a judicial lock up.

Sandhu declined to go into the specifics of the case, saying he will await the CBI FIR due on Monday before committing himself.

He said the investigation by the CBI had proceeded independently and his department was not aware of those developments.

On whether the bank had erred in raising the credit limit for two companies Prakash Industries and Bhushan Steel in exchange for the alleged bribe, Sandhu said he will have to examine the details.

But he accepted that unlike the large public sector banks, the smaller ones do have a problem in their credit assessment.

There is a case for consolidation of these banks and hopefully this case will give a spur to the process. These banks do not often have the necessary level of checks and safeguards necessary to track credit appraisal, he said.

Syndicate Bank with its headquarters in Manipal had declared its first quarter results on Friday. Its gross non-performing assets (NPAs) have risen to 2.97 per cent of gross advances, from 2.38 per cent in the same quarter a year earlier, though its net profit for the quarter has risen 7 per cent year-on-year.

The share price of the bank has risen by 0.63 per cent to Rs 144.65 at the BSE on Friday.

According to Sandhu, like other public sector banks, Syndicate Bank is financially a sound entity and the arrest of the chairman would not have any impact on the day-to-day functioning of the bank.

A CBI source said so far there is nothing in the papers to indicate the involvement of any other bank in the case. We have not said any such thing, so far, said the source.