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30 Aug 2019


  • Government mandate is to build a $5 trillion economy through efficient banks
  • For this purpose, the intervention of Government of India in Indian bank operation will decline in order to nudge them towards independent decision making
  • Focus will be on operational efficiencies, technology and scaling up so that banks perform their function effectively and evolve. Moreover, Fintech and customization with minimal disruption to be core of Indian bank transformation
  • It is recommended that a consortium of banks to be no more than 9 no matter how large the exposure under consideration
  • An early warning system (EWS) is said to be in place for loan exposures over Rs. 250 crores. Technically competent companies will be appointed for monitoring purposes
  • Sanctioning and monitoring of loans will now be separated
  • Fugitive economic offenders act has been passed
  • Retail and MSME Loan Management System (LMS) implemented
  • MSME bill discounting linked with GST
  • Managing Director (MD) positions among large public sector banks will now be open to the market participants/ experts for recruitment purposes
  • Loan recovery has increased from Rs. 77,000 crores to Rs. 1,20,000 crores as of today
  • Gross NPA has come down from Rs. 8.65 lakh crores to Rs.7.90 Lakh crores
  • Provisional Coverage Ratio (PCR) is maintained at a very healthy level of 75.3%
  • Among a total 18 PSBs, 6 PSBs have enhanced profitability and 14 are in a profit earning situation
  • Consolidation of banks has been successful; example of Bank of Baroda as a best practice was presented and templatized for collective gain. In the combined entity, CASA growth has been found to be robust and Market Capitalization is expected to touch Rs. 51,000 crores within one year until FY20
  • Board Committee will appraise the performance of senior management including MD, CGM and GMs, going forward
  • Banks will be allowed to recruit a Chief Risk Officer (CRO) at market linked compensation packages. The CROs will be given adequate power and rights to veto
  • For each of the senior level positions in banks, there will be a dedicated succession planning to retain expertise and talent within the system
  • Appointments will be of a minimum of 2 years at the senior level
  • Boards will be given the mandate to appoint the directors at market linked remuneration/ sitting fee
  • Executive Director strength is increased to 4 among bank leadership
  • Under the Bank Bureau, a leadership development program to be implemented

 Reorganization of Indian Public Sector Banks

  • The Finance Ministry has recommended that India will now have 6 very large global banks, 2 national banks and 4 regional (regional concentration) banks for maximum impact
  • For the consolidation process to take place, the large capacity of one bank was considered along with the technology orientation of another in order to arrive at maximum synergies
  • Among considered banks, CRAR, CET 1 and Net NPA (<6%) (BASAL 3 norms) variables are found to be compatible
  • No public disruptions will be caused due to the bank consolidation process
  • There will be now just 12 large well capitalized public sector banks in the country to help the economy attain the $5 trillion goal

Announced Consolidation Packages

  • Package 1: Punjab National Bank (anchor bank) to merge with Oriental Bank of Commerce and United Bank. Together the combined entity will be India‚Äôs 2nd largest bank with a business book of Rs. 17.9 lakh crore. Synergies will lead to a high CASA, larger credit availability, large cost savings, diversified income opportunities and compatible platforms. of the three banks considered for a quick realization of gains.
  • Package 2: Canara Bank and Syndicate Bank to merge, becoming the 4th largest lender in the country with a business book of Rs. 15 lakh crores
  • Package 3: Union Bank will merge with Andhra Bank and Corporation Bank. The combined entity will be the 5th largest lender in the country with an exposure of Rs. 14.9 lakh core
  • Package 4: Indian Bank and Allahabad Bank will combine to become the 7th largest lender in the country
  • Package 5: Bank of India and Central Bank of India to remain independent national banks and will receive all support from the Government of India to further consolidate their position
  • Package 6: Bank of Maharashtra, UCO Bank and Punjab and Sindh Bank will have a regional orientation in Western India, Eastern India and Norther India, respectively. This strategy will allow these banks to consolidate their strength in respective regions, while continuing their pan India operations
  • In order to aid effective consolidation, Punjab National Bank will receive additional recapitalization of Rs. 16,000 crores; Union Bank will receive Rs. 11,700 crores, Bank of Baroda will receive Rs. 11,000 crore, Indian Bank will receive Rs. 2,500 crores, Indian overseas bank to receive Rs. 3,300 crores, UCO Bank to receive Rs. 2,100 crores and Punjab and Sindh Bank will receive Rs. 750 crores