Top bosses from prominent state-owned lenders like Punjab National Bank (PNB), Canara Bank and Bank of Baroda, which may acquire small banks, have already set pre-conditions for the consolidation of banks, set in motion by the central government.
The target bank should be a profit-making, to ensure a smooth transition the current management should be given at least a three-year term after the merger and most importantly, the acquiring bank should be get capital from the government—these are some of the key demands of the acquiring banks, the Economic Times reported.
Banking officials said that senior PSBs officials laid down their conditions before the finance ministry officials during an informal meeting.
"We have put forward our suggestions which include demand for capital, longer term for management and inability to take over weak banks," seeking anonymity a senior official told ET. "Government will heed to these terms if they are true to their words that merger should be board driven," he added.
In August 23, the government gave an in-principle approval for the mergers of state-owned lenders. In a press briefing, Union Finance Minister Arun Jaitley said an alternative mechanism will be in place which is going to facilitate fast-track approvals of consolidations.
"A panel of ministers, whose members will be decided by the Prime Minister, will examine these consolidation plans," Jaitley added.
The government is looking in reducing the number of PSU banks to 15 from 21 through consolidations so that they achieve economies of scale. But it is not the government who call for bank merger, the proposal for the merger will come from respective PSU bank boards, said the finance minister.
"The objective is to create strong entities and but the decision regarding consolidation will be based on commercial feasibility," the finance minister added.
Reserve Bank Governor Urjit Patel earlier said merging public sector banks and having fewer of them would be better for the sector and also help deal with the problem of non-performing assets (NPA). Some of these banks can be merged in return for government assistance in taking care of the NPA problem and this would also make them more efficient, he said.
However, at a current situation banking sector is under tremendous pressure due to mounting stressed loans.
Acquiring banks believe that it would be difficult to get the right candidate due to the dire financial condition of most PSU banks. Moreover the government has just pumped in a mere Rs 10,000 crore in these banks this year, which most believes that the amount is too inadequate.
Nine banks reported losses of '18,066 crore in FY 2016-17 and nearly six banks are facing restrictions on expanding banking operations. As on March 2017, post-provisions, PNB's bad loans is at 7.8 percent of total loans, while Canara Bank's net bad loans is at 6.3 percent, reported the business daily.
Many analysts believes that consolidation of PSBs won't be a easy task as more than a dozen banks expected to report losses in financial year 2018.
