Nirmala Sitharaman lists PSU bank reforms under Modi govt; NPA recovery, big merger: All you need to know

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Updated: August 30, 2019 7:16:02 PM

Taking the PSB merger agenda of the last government further, Finance Minister Nirmala Sitharaman met chiefs of public sector lenders on Friday.

green activities, environment ministry, soil conservation, biodiversity management, forest fire, Compensatory Afforestation Fund Management, economyNirmala Sitharaman said that the government’s intention is not just to give capital but to provide good governance.

Taking the PSB merger agenda of the last government further, Finance Minister Nirmala Sitharaman met chiefs of public sector lenders on Friday. In a major consolidation of state-run lenders, Nirmala Sitharaman announced amalgamation of 10 government banks into four big PSU banks, the most notable among them being a merger of Punjab National Bank, Oriental Bank of Commerce and United Bank of India to create the nation’s second largest PSU bank (read full story). Further, highlighting the major improvements under the Prime Minister Narendra Modi government in the banking sector, Nirmala Sitharaman said that the reforms have helped the banks to recover from the pressure by NPAs in the last few years. The reforms have boosted the banking economy and recurrence of the past weakness is now unlikely, she added.

“Of the five banks under the prompt corrective action framework, capital has been announced for three banks, i.e. IOB, CBI and UCO bank. In our view, the announced capital infusion is unlikely to be sufficient for taking these banks out of PCA in the immediate future,” said Anil Gupta, Vice President, Sector Head – Financial Sector Ratings, ICRA. United Bank will cease to exist upon merger and outcome for IDBI bank will depend on the capital raising done by the bank, he added.

Read | Mega PSU Bank Merger Announced: PNB, OBC, United Bank into one; 10 banks into four

Addressing the press conference after meeting with the heads of the PSU banks, Nirmala Sitharaman also mentioned that the government’s intention is not just to give capital but to provide good governance. She said that eight PSU banks have launched the repo rate linked loans in the last one week and documents are being returned in the 15 days period after the loans are being repaid. Talking about the enhanced profitability of the PSU banks, she mentioned that 6 out of 18 PSU banks showed enhanced profitability in the second half of the previous financial year, whereas, 14 out of 18 such banks registered enhanced profitability in Q1 FY20.

Other highlights from the press conference are:

    • In the area of retail loans, there has been an increase of 20.5 per cent on-year in June 2019.
    • Loan recovery is at the record level.
    • Provisional coverage ratio has also improved.
    • Gross NPA has come down.
    • Swift transactions merged with CBS.
    • Resolution on stressed assets improved under IBC.

Indian Bank, OBC, Corporation Bank are some of the banks called for the meeting today, the report added. In the previous term of the Modi government, five associate banks and Bharatiya Mahila Bank were merged with State Bank of India. Similarly, Dena Bank, Vijaya Bank merged with Bank of Baroda which came into effect from April 1, 2019. According to the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, the government must consult the Reserve Bank of India (RBI) before planning of merger plan.

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Notably, former Finance Minister Arun Jaitley has promoted the idea of consolidation in the public sector banks to make them globally competitive and better players in the banking space. “I think India needs fewer and mega banks which are strong because in every sense, from borrowing rates to optimum utilisation, the economies of scale as far as the banking sector is concerned are of great help,” Arun Jaitley had said in February this year.

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