Government to set up alternative mechanism for merger of state owned banks

The government on Wednesday decided to set up an alternative mechanism to oversee the proposals for consolidation of public sector banks (PSBs) with a view to create fewer but stronger lenders.

Finance Minister Arun Jaitleysaid a ministerial panel will be set up to supervise merger proposals from banks' boards, adding that the objective of the planned consolidation was to create fewer but stronger lenders.

The alternative mechanism will be decided by Prime Minister Narendra Modi, finance minister said after a Union Cabinet meeting.

The government aims to create strong and competitive banks in public sector space to meet the credit needs of the growing economy, absorb shocks and have the capacity to raise resources without depending on the state exchequer, he said.

The decision regarding creating strong and competitive banks would be solely based on commercial considerations, he added.

After the in-principle approval, Jaitley said, the banks will take steps in accordance with law and Sebi's requirements.

The final scheme will be notified by the central government in consultation with the Reserve Bank.

On Tuesday, State Bank of India (SBI) chief Arundhati Bhattacharya too had advocated for the merger of PSBs saying this could reduce their dependence on government for capital.

"From a government point of view, besides an increased stream of dividends, which forms a part of their non-tax revenue, mergers of state-run banks can also reduce dependence of the merged bank on government for the future capital infusion," she said.

(With inputs from Agencies)