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Finance minister Nirmala Sitharaman (Pradeep Gaur/Mint file)
Finance minister Nirmala Sitharaman (Pradeep Gaur/Mint file)

Five things to watch out for in Nirmala Sitharaman's meeting with PSB heads

  • Finance minister Nirmala Sitharaman will discuss the consolidation of 10 public sector banks into four bigger and stronger banks
  • At present, there are 18 PSBs, against 27 in 2017. There will be only 12 public sector lenders post merger

Finance minister Nirmala Sitharaman will meet heads of public sector banks (PSBs) on Thursday for a review meeting. Besides other issues, the meeting will focus on the amalgamation of 10 public sector lenders into four bigger and stronger banks, announced by the government on August 30.

“After the announcement of the merger, the government now wants to receive feedback from the banks. The strategy and the timeline towards the merger is also expected to be discussed," a senior bank official told Mint.

Currently, there are 18 PSBs compared with 27 in 2017. There will be only 12 public sector lenders after the proposed merger. Under the merger plan, Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank will be brought together to form the second largest public sector bank in the country, after State Bank of India (SBI). The merger of Canara Bank and Syndicate Bank will create India’s fourth-largest PSB. Union Bank of India will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest lender, and Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB.

While announcing the merger, finance secretary Rajiv Kumar had said the respective bank boards will come back to the finance ministry which will then consult the banking regulator. After the consultation, the scheme of amalgamation will be formulated, and thereafter the effective date of merger will be decided in consultation with the banks, he had said.

Meanwhile, four bank unions have announced a two-day strike, starting at midnight on 25 September, to protest the mergers.

“Banks that will be merged with the anchor bank are not very happy. Nobody wants to lose their identity," the official cited above said.

On Saturday, Sitharaman said that the she will take stock of the several steps announced by the finance ministry for the banking sector in the last one month.

Here are five other key issues that will be discussed:

1.Follow up actions with respect to Reserve Bank of India rate cuts. To improve transmission of interest rates, the RBI on 4 September asked banks to link their lending rates on floating rate loans to retail, personal and micro, small and medium enterprises (MSME) borrowers to an external benchmark from 1 October. The regulator had said the transmission of policy rate changes to the lending rate of banks under the current marginal cost of lending rates (MCLR) framework has not been satisfactory.

2.The minister will also take stock of the measures to support NBFCs and housing finance companies (HFCs). The government will monitor the purchase of pooled assets of NBFCs/HFCs up to 1 lakh crore, at the top management level under the credit guarantee scheme

3.There will be discussions on for one-time settlements (OTS) policy that is expected to benefit MSME and retail borrowers in settling their dues, and that the lenders will also pass on RBI's repo rate cut to the customers.

4.Mandated release of security documents within a fortnight of loan closure

5. There will also be discussions on introducing doorstep banking for senior citizens.

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