NEW DELHI: The finance ministry is mulling reducing the number of public-sector banks (PSBs) in India by merging some of the banks, the finance ministry’s principal economic advisor Sanjeev Sanyal said here on Friday.
He said the ministry would begin the process of bank mergers once the task of setting right bad loans was taken care of. Currently, there are 21 PSBs in the country. This number would come down to 10-15, he said, adding there will not be a drastic reduction as it would lead to a larger problem of concentration of risks with a single bank.
“We recognise that bringing down the numbers drastically to four or five PSBs will lead to too many ‘too-big- to-fail’ banks. Currently, we have one large bank, State Bank of India. We do not want to create similar structures,” Sanyal said.
Speaking at the India Economic Summit here, he said recapitalisation of PSBs was a more urgent issue, which the ministry would focus on resolving. Regional balance, geographical reach, financial burden and smooth human resource transition would be some of the factors of consideration, apart from ensuring that a weak bank will not be merged with a strong one as it could bear an impact on the latter, Sanyal observed.
As part of the clean-up process, RBI has already started recognising the bad assets, and is taking some of them to bankruptcy and insolvency process.
“Now, the second step is recapitalisation and getting these banks running again...that will be done in next few months. The government is fully aware that we need a much larger banking system by factors of multiple than what it is today,” Sanyal said, adding India’s banking system is way too small for future and needs to be expanded significantly,” he said.
He added recapitalisation bonds is an option for infusing capital into banks and the government could dilute its stake in some lenders to 52 per cent.