Bank Merger is again in news. As per media reports, the finance ministry may soon set up a new committee for merger of public sector banks.
As per sources and media reports, the government may merge 12 state-run banks into five and raise their foreign investment cap to 49%. The committee may be headed by former department of financial services (DFS) secretary M. Nagaraju.
Foreign Direct Investment (FDI) in Public Sector Banks (PSBs) is currently capped at 20% and requires prior government approval. The government must maintain a minimum 51% shareholding to retain public control.
The 20% FDI is allowed strictly through the government approval route. Individual foreign shareholder voting rights are currently capped at 10% to prevent them from taking strategic management control. In contrast to PSBs, private sector banks allow up to 74% FDI (49% via the automatic route and up to 74% through the government route).
“Discussions on the committee’s terms have already been held with the Prime Minister’s Office (PMO),” reported livemint.
The Union budget for FY27 had proposed a committee to chart “Banking for Viksit Bharat,” aimed at improving efficiency, governance and competitiveness among PSBs.
Finance Minister Nirmala Sitharaman had said reforms will help align public sector banks “with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection.”
The committee may comprise up to five members, including current DFS secretary Sanjay Lohiya. A former chairman of the State Bank of India and a former deputy governor of the Reserve Bank of India (RBI) are also being considered for the committee.
On 1 April 2020, the government merged 10 PSBs into four larger banks. Oriental Bank of Commerce and United Bank of India were amalgamated with Punjab National Bank; Allahabad Bank merged with Indian Bank; Syndicate Bank with Canara Bank; and Andhra Bank and Corporation Bank with Union Bank of India.
Earlier, in April 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda. The consolidation drive reduced the number of public sector banks from 27 in 2017 to 12 by 2020, aiming to improve operational efficiency, risk management, capital utilization and lending capacity.
The new committee may also recommend raising the foreign direct investment (FDI) cap of 20% in PSBs to as much as 49% to attract global capital and strengthen banks’ balance sheets.
Earlier, it was reported that the finance ministry is drawing up a fresh blueprint to merge select public sector banks.
There were discussions around a potential merger of Union Bank of India and Bank of India and merger of Indian Overseas Bank and Indian Bank.
More details will be released soon.
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