Modi govt’s bank bailouts seen distracting focus from growth slump

Modi govt’s bank bailouts seen distracting focus from growth slump

This was the second set of measures announced by Finance Minister Nirmala Sitharaman to prop up the economy and at least one more is expected next week.

Chennai: Members of the All India Bank Employees' Association on Saturday staged a protest here against the Centre's decision to merge 10 public sector banks into four entities.

The government chose to go ahead with the mergers now because the banks are nearly adequately capitalized, there will be no disruption to business, and no bank employee will be hurt by the process, Finance Secretary Rajiv Kumar said in an interview.

Giving details of governance reforms in the public sector banks, she said these will bring transparency and strengthen bank boards. "The government will keep its stake at 51 per cent in the nationalised banks", Kumar said after the announcement of the merger of PSU banks.

As a result of host of initiatives taken by the Finance Ministry, the banking sector witnessed a reversal in the deteriorating bad loan situation with reduction of NPA by 1.06 lakh crore and record loan recovery of Rs 1.21 lakh crore in the last fiscal.

As with the price movement in the case of SBI that merged with its associate banks and BOB that merged with Dena and Vijaya Bank, there will a positive movement at first, which can then be guided by operational performance post merger comes into effect.

How long will it take for the three banks to start functioning as one bank?

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She also announced the contours of a Rs 55,000-crore recapitalisation plan for the entities that are to be merged as well as the six - Bank of India, Central Bank, Punjab & Sind Bank, Indian Overseas Bank, Bank of Maharashtra and Uco Bank - which are not part of the consolidation plan.

The government has injected roughly $36 billion rupees of taxpayers' money into state-run banks over the last five years to revive the sector.

Mr. Shetty said that the large-scale merger of banks will adversely impact the ease of banking for the common public.

Another risk is that credit growth again plummets as it did in 2016, when a shock cash ban by Modi made bankers responsible for exchanging old bills for new, leaving them no time to dispense loans. Is this the formula for India to reach $5 trillion economy target?

"To support the next level of growth, the country needed big banks".

Chairman and chief executive officer, Edelweiss Group, Rashesh Shah said, "The consolidation in the banking sector will create higher efficiencies through better utilization of capital, greater credit disbursal, focused customer service and global expansion opportunities".

Terming the decision as unmindful since it has no logic or rationale. "Today's decision is a reflection of the government's commitment to provide the country the financial base on which we can grow and move towards the $5 trillion mark".

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