PSU bank mergers get the go-ahead from Union Cabinet

New Delhi: The government on Wednesday decided to take consolidation in the banking sector to the next level by setting up a ministerial panel led by finance minister Arun Jaitley to consider and oversee mergers among the country’s 21 public sector banks. The decision, which comes a day after bank employees’ unions went on strike and at a time when state-owned banks are reeling under losses and stressed loans, has raised questions about the timing and purpose of such a large-scale consolidation.

Jaitley said that the PSU bank merger proposals have to come from bank boards and that decisions will be taken purely on commercial considerations. Such considerations include the desire of banks to reduce the concentration of their loan portfolio in certain geographies and to acquire a fresh footprint in certain other markets, said a government official on condition of anonymity.

“The objective is to create strong banks and the experience of bank mergers has so far been positive,” said Jaitley.

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