NEW DELHI: India announced an extensive consolidation of state-owned banks that will see 10 of them being merged to form four bigger lenders to strengthen a sector struggling with a bad-loan cleanup and aimed at creating lenders of global scale that can support the economy’s surge to $5 trillion by 2024. The government also announced governance reforms to improve their health.
“We want to create next-generation banks,” finance minister Nirmala Sitharaman told reporters on Friday. “You need big banks with enhanced capacity to increase credit… You need banks with strong national presence and global reach.”
Bank unions, however, opposed the mega merger move saying it lacks any rationale.
This was the latest in a series of announcements by the government since last week as it seeks to stimulate demand and revive the economy. In a separate announcement, the government said growth had slumped to a six-year low in the quarter to June.
The latest consolidation move will slash the number of state-owned lenders to 12 from 27 in 2017, Sitharaman said, highlighting the banking reforms undertaken by the Narenda Modi government that have also included significant tidying-up of balance sheets.
“Today’s announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer,” said State Bank of India chairman Rajnish Kumar.