New mechanism to spur PSB mergers:

New mechanism to spur PSB mergers:

Context:

  • The Cabinet approved ‘in-principle’ the constitution of an alternative mechanism, likely to be a ministerial group, that will oversee the proposals for mergers among banks.

Explanation:

  • As of today, there are 20 public sector banks plus the State Bank of India (SBI).
  • Adding SBI’s five subsidiaries and Bharatiya Mahila Bank had already been merged with the country’s largest bank.
  • The Centre’s nudge towards consolidation among public sector banks assumes significance as most of them are grappling with huge levels of non-performing assets or NPAs, slow credit off take and resultant pressures on capital adequacy.

Benefits:

  • It adds commercial strengths and prevents multiplicity of resources being spent in the same areas.
  • It also improves the capacity of the banking system to absorb shocks that the market throws up.

Suggestions:

  • Stronger public sector banks will help meet the credit needs of a growing economy, absorb shocks and give them the capacity to raise resources without depending unduly on the state exchequer.
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