Government plans to start next round of public sector bank mergers

The government plans to begin the next round of public sector bank mergers after analysing a comprehensive study that has been commissioned on the outcome of combination in state-run banks, a senior finance ministry official said.

The intent is to have 4-5 large banks as large and strong as the country’s biggest granter

State Bank of India NSE -1.47 % (SBI NSE -1.47 %), said the official who requested anonymity

At present, there are seven large public sector banks and five little ones.

“Concerned banks have been asked to submit their feedback by month end. We will be holding wider consultations through Indian Banks’ Association (IBA) and with other stakeholders before firming up the future strategy,” the person said.

Ahead of time this week, a report on privatisation of PSBs by National Council of Applied Economic Research (NCAER) made a case for privatisation of all PSBs excluding SBI.

The report prepared by NCAER’s director Poonam Gupta and economist Arvind Panagariya noted that PSBs have mostly lagged behind private banks in all the major gauge of performance during the last decade. “They have seen acidulous loans and operational costs soared,” it said. “These PSBs have also attained lower returns on assets and equity than their private sector equivalent.”

The finance ministry official, however, said state-owned banks have improved their performance on all major gauge in the last few years and in FY22 doubled their profits.

“The government will continue to conserve its presence in this sector although we will like to bring down the number to around 4-5 from existing 12 banks,” said the official quoted above.

The government will likely introduce a bill in the oncoming monsoon session of parliament to make amendments to facilitate privatisation of state-run banks.