To expedite public sector bank merger, the Union Cabinet approved a framework for consolidation among PSBs, including a proposal to set up an Alternative Mechanism (AM) to create strong banks.
As per the framework, mergers decisions should originate from the banks and these should be based on commercial decisions.
The Alternative Mechanism will comprise of senior ministers of the government.
The proposals received from banks for in-principle approval to formulate schemes of amalgamation shall be placed before the Alternative Mechanism.
After in-principle nod, the banks will take steps in accordance with law and Sebi’s requirements
Benefits:
Consolidation will improve capacity of the banking system to absorb shocks
Mergers are expected to reduce the pressure on the government of providing capital to the banks.
In 2015, Centre launched the Indradhanush programme, to infuse Rs 70,000 crore into public banks.
The decision is expected to facilitate the creation of strong and competitive banks in public sector to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the state exchequer
Idea of consolidation was first suggested in 1991 but gathered pace in 2016.
“In 1991, it was suggested that India should have fewer but stronger public sector banks.
