FinMin releases road map to rationalize PSU banks’ foreign operations
New Delhi: As part of its efforts to streamline the operations of state-run banks, the finance ministry on Thursday released a road map for consolidation of the overseas operations of these lenders.
The rationalization in foreign operations will be through a mixture of closure of overseas branches, subsidiaries, representative offices and remittance centres and through consolidation of joint ventures where more than one bank is a shareholder.
State-run banks will consolidate 35 overseas operations without affecting their international presence, Rajiv Kumar, secretary, department of financial services, wrote on Twitter, adding 69 more operations have been identified for consolidation.
The rationalization of overseas branches is aimed towards “cost efficiencies and synergies in overseas markets”, he said.
Further, all existing 216 operations of state-run banks in other countries will be examined to check for possible consolidation.
Banks have been asked to close non-viable operations for cost efficiencies. Also, the finance ministry is pushing for consolidation of operations in the same market. Banks have also been asked to consolidate equity holdings in joint ventures where more than one state-run bank is a stakeholder.
This comes at a time when the overseas operations of banks are under scanner following the Rs12,636 crore fraud at Punjab National Bank (PNB).
The government is examining lapses in systems followed by overseas branches while giving loans to group firms of Nirav Modi and Mehul Choksi against letters of undertaking (LoUs) fraudulently issued by some PNB officials.
Barring one bank, all the branches who lent to Modi against these LoUs were of state-run lenders.
In a separate incident, Bank of Baroda was forced to shut operations in South Africa after its loans to firms owned by three brothers from Uttar Pradesh—Ajay Gupta, Atul Gupta and Rajesh Gupta—considered close to former South Africa president Jacob Zuma, came under the scanner of the South African regulator for alleged money-laundering.
These incidents, along with the need to preserve capital at a time when state-run banks are struggling with high levels of debt and low levels of profitability, has prompted the government to kickstart the rationalization process. The government had promised a massive Rs2.11 trillion capitalization plan for state-run banks but with the Reserve Bank of India doing away with restructuring norms like SDR and S4A, banks are expecting a massive increase in provisioning requirements that could impact profitability.
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