Bank merger, Punjab National Bank, PSU, Public sector, Union Bank
The central government’s plan to combine 10 state-run banks into four came into effect from Wednesday (April 1) which was announced in August 2019. Photo: PTI File.

Centre plans to reduce number of nationalised banks from 12 to 4

The Centre wants to cut down the number of nationalised banks from 12 at present to about four or five in the next few years, suggest media reports.

At present, the government is studying the impact of consolidation on nationalised banks in 2019. Back then, the Centre had merged 10 nationalised banks into four, thus reducing the number of public sector banks from 27 a year before to just 12.

As per media reports, the government now wants 4-5 public sector lenders which will be as strong as the State Bank of India.

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The primary reason for consolidating state-run banks is their poor performance on almost all parameters when compared with private banks. A report by the National Council of Applied Economic Research (NCAER) on privatisation of public sector banks suggests that all state-run banks, except the SBI, should be privatised. The report says that PSBs’ bad loans (NPAs) have gone up while their operational costs are also way higher than those private banks. Also, the state-run banks have attained lower returns on assets and equity than their private sector counterparts, the report says.

The Centre is expected to bring a bill in the upcoming monsoon session of Parliament to facilitate privatisation of PSBs. The bill would suggest an amendment to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which makes it mandatory for the Union government to hold at least 51 per cent in all public sector banks. It is evident that the government wants to completely exit from banks and privatise them.

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