India to merge 10 state banks as economy falters

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Country will soon have only 12 public-sector banks, down from 27 in 2017


Indian Finance Minister Nirmala Sitharaman and the Reserve Bank of India Governor Shaktikanta Das at a board meeting of the central bank in New Delhi in July.   © Reuters

Indian Finance Minister Nirmala Sitharaman and the Reserve Bank of India Governor Shaktikanta Das at a board meeting of the central bank in New Delhi in July. © Reuters

India on Friday announced that 10 state-run banks will be merged into four "well-endowed" entities with a wide domestic network and global reach.

Finance Minister Nirmala Sitharaman made the announcement at a press conference after meeting the chiefs of the state-backed banks. Under the plan, Punjab National Bank, Oriental Bank of Commerce and United Bank will form one of the four merged entities; Canara Bank and Syndicate Bank will form another; Union Bank of India, Andhra Bank and Corporation Bank will form the third; and Indian Bank and Allahabad Bank will become the fourth merged entity.

This follows Sitharaman's Aug. 23 announcement of a set of reforms aimed at jump-starting a faltering economy including dropping a recent tax increase on foreign equity investors and removing an additional levy on startups, among others. The announcement included incentives to boost the ecosystem for small- and medium-sized enterprises, and an infusion of 700 billion rupees ($9.8 billion) into public sector banks.

In the first five-year term of Prime Minister Narendra Modi's government, which returned to power in May, nine state-run banks were merged into two entities -- State Bank of India and five of its associate banks, while Bank of Baroda, Dena Bank and Vijaya Bank were merged.

After that round, the number of government banks fell to 18 in April from 27 in 2017. "Of the 18 public sector banks, 14 are in profit-earning situation," Sitharaman said

After the latest round of mergers, the number of state-run banks will fall to 12.

Sitharaman said the government has been working to improve the governance of public sector banks and to strengthen them. She also pointed out that the gross nonperforming assets of these banks had come down to 7.9 trillion rupees at the end of March, from 8.65 trillion rupees in December 2018.

She said the government is trying to build "next-generation" banks backed by strong technology, with a wide network domestically as well as some global clout. This will go toward India's goal of transforming into a $5 trillion economy in the next five years, from $2.6 trillion now.

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