Finance ministry asks public sector banks to close loss-making branches

Finance ministry asks public sector banks to close loss-making branches

The finance ministry has asked public sector banks (PSBs) to look at rationalising their domestic and overseas branches as part of the reform process to strengthen their financials.

The banks have been advised to pursue closure of loss making domestic and international branches as part of capital saving exercise, official sources said. There is no point in running loss making branches and putting burden on the balance sheet, so banks should look at not only big savings but also small savings like these for improving overall efficiency, people in the know said.

Many banks, including State Bank of India (SBI) and Punjab National Bank (PNB), have already taken initiative. Indian Overseas Bank has also rationalised the number of regional offices in the country by reducing 10 regional offices from existing 59 with an objective of optimum utilisation of resources and reduction in administrative costs.

With regard to overseas branches, the ministry has asked the lenders to discuss consolidation and take a final call on closing some unviable operations.

The ministry is of the view that there is no need of multiple banks in a single country, people in the know said, adding that banks can explore a single subsidiary formed with five-six banks coming together for conserving capital and realising economy of scale.

Besides the subsidiary model, public sector banks are also looking to close down branches or selling off subsidiaries to focus on markets that give them maximum returns.

As part of the rationalisation strategy, PNB is exploring possibility of selling a stake in its UK subsidiary PNB International. Bank of Baroda and SBI are also examining the issue of consolidation.

Bank of Baroda has presence across 24 countries through 107 branches/offices. It has 59 branches in 15 countries, while 47 branches operate through Bank’s 8 Overseas subsidiaries. The country’s largest lender SBI has 195 foreign offices spread across 36 countries.

Source: LM