City: New Delhi

The consolidation in the banking sector – merger of weak public sector banks with stronger lenders – is unlikely by the first quarter of FY20 as the government is learnt to have developed cold feet.

According to finance ministry officials, with elections round the corner decisions on bank mergers and consolidation have been put on the slow burner and it would be difficult to conclude the process when the country would be voting to elect a new government.

For the central bank, which has been focussing on recapitalisation and lowering of bad loans in the banking sector, the consolidation is no more a priority. The change in the Reserve Bank of India’s (RBI) posture may also delay completion of the merger process, they said.

In September, the Narendra Modi-led government announced the plan to merge Bank of Baroda (BoB), Dena Bank and Vijaya Bank. RBI, however, too its own time and approved the plan only recently. The government wants to create a few big banks, which could compete globally.

According to a senior finance ministry source, as the government has already gone into the election mode most issues will be on the back burner for now.

“The general election is likely in April-May and the completion of the bank merger process is unlikely to complete by June 2019,” the senior official told FC.

The consolidation is also facing opposition from employees and bank unions and tackling issues like alignment of human resources, information technology systems and branch network, is a long-drawn process.

After the merger of three lenders – BoB, Dena Bank and Vijaya Bank -the government plans to amalgamate Canara Bank with Punjab National Bank (PNB). But PNB, the second largest PSB, is said to be not ready to be part of the consolidation process.

At a meeting with top officials of state-run banks, new RBI governor Shaktikanta Das only took up issues related to the prompt corrective action (PCA) framework, PSB liquidity and credit flows to MSMEs.

“The recapitalisation will enhance lending capacity of PSBs and help them come out of PCA framework. Lowering of non-performing assets will also help PSBs regain health,” the official said.

At present, only State Bank of India (SBI) figures in the top 50 lenders of the world. SBI merged five subsidiaries and Bharatiya Mahila Bank with itself in 2017.

Courtesy by : Daily Hunt