Cabinet has cleared Alternative Mechanism for PSB mergers: FM

New Delhi: The government on Wednesday decided to set up an Alternative Mechanism to oversee proposals for expeditious consolidation of public sector banks (PSBs) so as to create large, strong lenders. The move aims at meeting the credit needs of the growing Indian economy and building capacity in the PSB space to raise resources without dependence on the state exchequer, the government said.

The Cabinet has given in-principle approval for PSBs to amalgamate through an Alternative Mechanism (AM), said an official release. "The decision would facilitate consolidation among the Nationalised Banks to create strong and competitive banks," it said.

Briefing about the decision, Finance Minister Arun Jaitley said the AM will oversee the proposals coming from boards of PSBs for consolidation. "You have a large number of banks in the public sector. The object is to create strong banks. Our experience of consolidation has been positive so far," he said, adding that an AM "enables a quick facilitation".

The decision to set up the AM follows State Bank of India merging its five associate banks, as also the Bharatiya Mahila Bank, with itself. Jaitley said that the decision regarding creating strong and competitive banks will be "solely based on commercial considerations".

He said that the process to facilitate consolidation among nationalised banks must come from the boards of the banks. The proposals received from banks for in-principle approval to formulate schemes of amalgamation would be placed before the AM.