Unfazed by the protests of bank unions, Finance Minister Arun Jaitley on Friday said the government will go ahead with the merger of associates banks and Bharatiya Mahila Bank with SBI as the proposal has been approved at the highest level by the Union Cabinet.
“All procedure will be followed. The government has already taken decision at the level of the Cabinet to fully support the proposal for the merger,” Jaitley told reporters post the meeting with public sector banks for the first quarter performance review.
Government has recently cleared the proposal to merge State Bank of India (SBI) with its five associate banks -- State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Hyderabad -- and the new Bharatiya Mahila Bank (BMB).
In August, SBI had said that all its associate banks and BMB will be merged into it that will add an additional Rs 8 lakh crore to its assets making it a banking behemoth with total assets of Rs 30 lakh crore, an increase of about 36 per cent.
In May, about 50,000 employees of the five SBI associate banks had gone on a day-long nationwide strike to protest the merger with their parent bank SBI.
The union, in a protest under the banner of All India Bank Employees Association, had said: “We are protesting against the plan of SBI management to merge 5 large associate banks into it. Besides, the Kerala Legislative Assembly had passed a resolution in July against the merger of State Bank of Travancore (SBT) with SBI, stating it would adversely affect the state’s economic growth.
The resolution, introduced by Chief Minister Pinarayi Vijayan, had asked the Centre and Reserve Bank of India to rescind the decision to amalgamate SBT with SBI.
In reply to a question on dilution of stake in IDBI Bank, Jaitley said the matter is still under consideration. “The issue is still under the consideration of the government. The decision of the government stands.” Government is also facing protest from bank unions with regard to divestment of its stake in IDBI Bank. It is planning to divest up to 49 per cent in a phased manner.
As of quarter ended June 30, government shareholding in IDBI Bank stood at 73.98 per cent.
Jaitley said there are mechanisms for buying stressed assets and if there are companies within the country, whether public or private sector, which think it is right time to buy at right value, they obviously will make commercial judgement.
“And then, some banks themselves have been considering a stressed fund (asset reconstruction company). But, I think, one of the hopes that the banks have is that two major sectors (steel and infra) over the next few months will see a certain positive direction,” he said.
‘Funds to boost PSU banks limited by budgetary constraints’
Describing NPA situation as challenging, Finance Minister Arun Jaitley on Friday said funding to shore up public sector banks has budgetary constraints and lenders should take greater initiative to find buyers for stressed assets. After reviewing performance of banks with their chief executives, he said some of the non-performing assets (NPAs) that weigh on banks’ balance sheets and curb their ability to lend more, can be deprovisioned if the economy recovers. He referred to NPA situation as neither “static” nor “permanent”. Gross NPA of the public sector banks have surged from 5.43 per cent (Rs 2.67 lakh crore) in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16.
“One of the challenges which the banks did mention that they are facing...to find alternative promoters or buyers. They have been making efforts to do that,” Jaitley said. He also expressed the hope that once the situation improves banks will be able to cut rates further.
The minister further said that the Reserve Bank will take into the account the decline in retail inflation while deciding on interest rates at its policy review meeting on October 4. With regard to higher capital infusion in public sector banks (PSBs), Jaitley said obviously “the more the merrier, but the budget has its limitation”.
In a bid to shore up cash-strapped PSBs, the government last month announced infusion of Rs 22,915 crore capital in 13 lenders including SBI and Indian Overseas Bank to revive loan growth that has hit a two-decade low. This is the first tranche of capital infusion for the current fiscal and more funds would be provided in future depending on the performance of PSBs. In all Rs 70,000 crore in capital is to be invested over four years to contain risks in the banking industry.