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Journalism of Courage
Reserve Bank of India Governor Urjit Patel said the banking system in India could be better off if some public sector banks are consolidated so as to have fewer but healthier entities, as it would help in dealing with the problem of stressed assets, according to the PTI.
“As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks,” Patel said while delivering the Kotak Family Distinguished Lecture at Columbia University in New York.
Patel’s comment on merger of public sector banks is in line with the government’s plan of consolidation and overhaul of state-run lenders. In fact the government has already kicked off the bank consolidation process by merging five associate banks with parent State Bank of India (SBI), effective April 1. As a part of the process, the associate banks have rolled out voluntary retirement scheme (VRS) schemes for their employees.
Patel also said that public sector banks need to raise private capital from the market and not rely on “government largesse.” Patel said raising private capital will “restore some market discipline and get the banks and their shareholders to more seriously care about management decisions”.
In 2015, Centre launched the Indradhanush programme, to infuse Rs 70,000 crore into public banks. The government estimates that public banks would require about Rs 1.8 lakh crore of capital. This year Centre will put in Rs 10,000 crore into public banks.
Patel on Tuesday said that consolidation of banks could also entail sale of real estate where branches are redundant as well as offering voluntary retirement schemes to manage headcount and adding younger, digital-savvy personnel.
“The weaker banks are losing market share (and) that is a good thing. The stronger banks are gaining market share, which is a good thing, particularly the private sector banks. In a way it is working; those who need to shrink are shrinking. Lenders who are stronger are gaining more market share. I think there is a nice shift happening and we need to work with that to resolve this,” he said.
Patel said that divestment in public sector banks would have a positive role for the sector. “Divestment measures would improve overall banking sector health,” he said. Improved market valuations would create an opportune time for Centre to divest some of the ownership in the restructured banks and this would reduce the amount that the government needs to inject to deal with NPAs and stressed assets, Patel said.
