The government has decided to set up an alternative mechanism to oversee the proposals for consolidation of Public Sector Banks (PSBs) with a view to create fewer but stronger lenders. As of now there are 20 PSBs other than SBI.
The alternative mechanism will be decided by Prime Minister Narendra Modi, Finance Minister Arun Jaitley said after the Union Cabinet met on Wednesday.
“The Cabinet gave the in-principle nod to the constitution of the mechanism which will clear proposals of banks for mergers and amalgamation, ” Jaitley said.
The government aims to create strong and competitive banks in the public sector space to meet the credit needs of the growing economy, absorb shocks and have the capacity to raise resources without depending on the state exchequer, Jaitley added.
The decision regarding creating strong and competitive banks would be solely based on commercial considerations, he explained.
After the in-principle approval, Jaitley said, the banks will take steps in accordance with law and Sebi’s requirements.
The final scheme will be notified by the central government in consultation with the Reserve Bank.
The salient features of the approval Framework for consolidation of Public Sector Banks are as follows:
- The decision regarding creating strong and competitive banks would be solely based on commercial considerations.
- The proposal must start from the Boards of Banks.
- The proposals received from Banks for in-principle approval to formulate schemes of amalgamation shall be placed before the Alternative Mechanism (AM).
- After the in-principle approval, the Banks will take steps in accordance with law and SEBI’s requirements.
- The final scheme will be notified by Central Government in consultation with the Reserve Bank of India.