Sitharaman on Friday unveiled a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as the government looked to boost economic growth from a five-year low.
The merger of 10 PSBs ( PNB, Canara Bank, Union Bank of India, Indian Bank, United Bank of India, Allahabad Bank, Syndicate Bank, Corporation Bank, Oriental Bank of Commerce and Andhra Bank) needs a review, AIBEA General Secretary Ch Venkatachalam told UNI. "Mega mergers in public sector banks, reducing their number from 27 to 12 along with major governance reforms are a pointer towards the government fixing the banking sector issues with a resolve and objective of taking India's economy to $5 trillion by 2024", said ASSOCHAM President B.K. Goenka.
According to these, Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will be merged with their larger peer Punjab National Bank (PNB).
The government's decision to consolidate 10 public sector banks (PSB) into four mega state-owned lenders will act as a building block for achieving Dollars 5 trillion economy target, Finance Secretary Rajiv Kumar has said.
The merger of public sector banks would mean closure of six banks, he claimed.
Besides, the bank will also consider a capital infusion of up to Rs 16,500 crore by the government by way of preferential issue of equity share. See the example of three banks merging with Bank of Baroda.More news: Facebook may soon hide 'like' counts to stop you fighting for attention
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The government is also of the belief that these banking reforms are essential for the economy to pick up pace.
India Ratings head of financial institutions Prakash Agarwal said the mergers are mostly among larger banks, with absorbing bank not necessarily in strong health.
What are the reasons that the major bank unions to oppose the bank merger?
An analysis of the data provided in the finance ministry's presentation shows that the larger banks stand to benefit more in terms of capital adequacy than the smaller lenders, a sharp departure from the past, wherein the government infused capital in their balance sheets year after year. The government decided that amalgamation is the best move to achieve a $5 trillion economic for India in five years. Similarly, the Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank will continue their regional focus.
"The proposals which the government has moved are unmindful since it has no logic or rationale". The decision to have separate mechanism for sanctioning and monitoring of big loans will ring-fence the banks against potential frauds. "The decision will be deliberated by the board", he said.
VK Vijayakumar, the chief investment strategist at Geojit Financial Services, said the continuation of the slowdown in GDP growth was expected but the 5 percent growth in Q1 is worse than expected led by the decline in industrial production, the slump in auto space.