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Government may nudge state-run banks to present M&A options

Government may nudge state-run banks to present M&A options
The government will now nudge state-run lenders to present potential targets for merger and acquisitions after putting in place a procedure for quick decisions consolidation proposals and banks have been told to identify synergies across platforms including business operations and geographical spread, a senior finance ministry official said.

“They will present such options and those banks which have also shared similar inclinations, we will bring them together to pursue it further,” the official said. The union cabinet on Wednesday approved an alternative mechanism of a panel of ministers to decide on consolidation proposals for state-run banks.

“It is not necessary that a larger PSB should overtake a small or mid-size lender. If there is a synergy, two or three banks can merge to create a bigger and stronger entity,” said another finance ministry official, adding that the idea was to create stronger banks that can raise resources on their own. While the government is inclined to have at least 2-3 banks consolidating in this fiscal, it will take any decision on commercial consideration.

“SBI will be largely out of this exercise,” said the first finance ministry official quoted above. Already four banks including Dena, Syndicate, Vijaya and Canara Bank have made presentation along these lines. In the last few years, despite the government’s support for consolidation proposals, most PSBs have resisted, sometimes due to pressure from employee unions or out of fear of losing top management positions.

The urgency for consolidation comes from huge needs for capital for banks that the government is not in position to provide. Consolidation would reduce the need for government support. S&P Global Ratings estimates Indian state-run banks will need Rs 1.9 lakh crore in capital by March 2019. The government has committed only Rs 10,000 crore each in current fiscal and next. The decision to create this ‘alternate mechanism’ “would facilitate consolidation among the nationalised banks to create strong and competitive banks,” the government said in a statement.

The Economic Times, New Delhi, 25th August 2017

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