The Indian Government to Create Globally Competitive Large Lenders via Mergers: Finance Minister Arun Jaitley

Recently the finance minister Arun Jaitley said that the government kept its promise of continuing to fund banks in terms of capital.On Thursday he said the situation of bad loans in Public sector banks has improved in the last three quarters, and that government will amalgamate banks to create healthy and large lenders that are globally competitive.

“In order to make banks sound whether it is about taking judicial steps or important steps like creating healthy and large banks, which can be globally competitive, the government is also gradually following the policy of amalgamation,” he recently said at a function organized to release a report on public sector banks prepared by the Boston Consulting Group and Indian Banks’ Association (IBA).

Jaitley also said that the government lived up to its promise of continuing to fund bank in terms of assets. “I am glad that many of the banks have recently come out of the PCA norms and I am sure the ones that remain within will also try and strive to improve their measures with the government commitment of support to them, so that we can see much healthier banking in years to come,” he said.

Jaitley also said his government has ended the practice of “phone banking” by maintaining an arm’s length and not interfering in the functioning of banks. Initially, he also said that bad loans had spiked because of truthful disclosure requirements, which ensured that there was no sweeping of bad loans under the carpet. The NPA curve has gone down in the last two-three quarters, he said. The report, EASE Reforms for the Public Sector Banks, measures the performance of each PSB. The report said stress recognition is almost complete in PSBs and standard restricted advances as a percentage of gross advances reduced from 7% in the Month of March 2015 to 0.5% in December 2018.As per the EASE Reforms Index, the best public sector bank in the country is Punjab National Bank, which is followed by Bank of Baroda. The country’s largest lender, the State Bank of India was ranked on the third position on the index.

Financial services secretary Rajiv Kumar considerably noted that there has been a greater and faster fall in NPAs that the Reserve Bank of India data, the industry has been growing at 15-16 percent and that trend will continue in the years to come. During a separate event, Jaitley said India is moving from an emerging economy to a developed economy and is imperative to be ethical for that.The message has been loudly and clearly delivered, that people and particularly those working in the field of finance, have to break away from what was normal and live with the new normal, he said while addressing the board meeting of National Bank for Agriculture and Rural Development.

The minister noted that reforms in the banking sector are necessary to make public sector banks compete with the private sector banks.  “There are some reforms which were born out of compulsion, but many of the reforms are born out of conviction. I must agree with the fact that, for the government, this one is a culmination of both”, he said.