RBI Optimistic About PSU Bank Mergers Creating Lenders Of Global Scale

The Reserve Bank of India believes that the ongoing public sector bank mergers will achieve the desired objective of creating stronger and well-capitalised lenders of global scale.

India, at present, doesn’t have a single bank in the global Top 50 list which, since the 2008 financial crisis, has been dominated by Chinese lenders. To be sure, State Bank of India did have a short stint in the list after absorbing five of its associates, but soon slipped out due to a balance sheet burdened with bad loans.

In its attempts to recapitalise the crippled state-owned lenders, the government had in August announced merger of 10 public sector banks into four. According to the plan,

• Punjab National Bank will take over Oriental Bank of Commerce and United Bank
• Canara Bank will take over Syndicate Bank
• Union Bank of India will take over Andhra Bank and Corporation Bank
• Indian Bank will be merged with Allahabad Bank

The process, likely to be completed by March 2020, will reduce the number of state-owned banks to 12 from 19 at present and 27 in 2017. In 2018-1919, the government had merged Vijaya Bank and Dena Bank with Bank of Baroda. The SBI merger was effected in In 2017.

"The merger of PSBs is likely to transform the face of our banking sector with the emergence of stronger, well-capitalised banks, aided by cutting-edge technology and state-of-the-art payment systems. Our banks have the potential to become global banking leaders," RBI said in its annual report on 'Trends & Progress of Banking 2018-19' released on Tuesday.

The RBI report warned banks about the rising competition from fintech and other large tech companies. It noted a global growth slowdown has impacted the financial system worldwide, especially banks, as is visible in their falling profitability and shrinking balance sheets.

On liquidity-starved non-banking financial companies, the report said the central bank expects them to come out of the mess faster as the liquidity situation has been improving since recent months. As liquidity strains recede and solvency shores up, NBFCs are expected to regain their niche and expand their reach, the report said.

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Going forward, the need of the hour is to continue the policy coordination with a view to developing the banking system on one hand and securing a competitive and resilient non-banking sector, it added.