No Plans for Public Sector Bank Mergers, Finance Ministry Confirms
The Finance Ministry has clarified that no proposals are currently under consideration for merging public sector banks (PSBs).
This statement was made in the Rajya Sabha on Tuesday, with the Ministry also acknowledging the positive impact of previous consolidations in the sector.
Mergers Yield Positive Results
In recent years, India has seen significant consolidation in the banking sector. As of now, there are 12 public sector banks, down from 27 in 2017. A landmark consolidation occurred on April 1, 2020, when ten PSBs were merged to enhance operational efficiency and financial strength. Notable mergers included:
- Oriental Bank of Commerce and United Bank of India with Punjab National Bank
- Syndicate Bank with Canara Bank
- Andhra Bank and Corporation Bank with Union Bank of India
- Allahabad Bank with Indian Bank
These mergers have led to improved synergies, economies of scale, and better technology integration. Minister of State for Finance Pankaj Chaudhary highlighted that these efforts resulted in uniform improvements across critical financial parameters.
Strengthened Financial Health
The government has implemented several reforms to strengthen PSBs and ensure their financial stability. These measures include systemic improvements and enhanced checks and controls to minimize excessive stress.
As an example of the benefits of these reforms, Punjab National Bank reported significant financial gains post-merger. Its Capital to Risk Assets Ratio (CRAR) improved from 12.7% to 16.4%, while its Common Equity Tier 1 (CET1) ratio rose from 9.6% to 11.6%. Gross Non-Performing Assets (GNPA) reduced to 4.5% from 1.8%, and the bank turned its Return on Assets (RoA) positive, reaching around 1% from a previous negative 0.7%.
Expanding Reach and Inclusion
The consolidation of PSBs has enabled them to expand their geographical reach, penetrate untapped markets, and diversify their customer base. With an extended network of banking outlets, public sector banks now serve remote areas, promoting financial inclusion and stimulating economic growth in underserved regions.
The Ministry’s stance reaffirms the government’s commitment to strengthening the banking sector through past reforms while ruling out any immediate plans for further mergers.
