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Finance Ministry Clarifies: No Merger Plans for PSU Banks After Committee Meeting Agenda Update

In a recent development, the finance ministry has stepped in to clear the air regarding speculations around potential mergers of public sector banks. Contrary to rumours, there are no plans for new mergers. The upcoming parliamentary committee meeting is centred on discussing regulatory aspects post the significant bank mergers that occurred in 2020, not initiating fresh consolidation.

Initial confusion stemmed from a letter mentioning the “post-merger scenario,” which, upon clarification, refers to the regulatory framework after the 2020 mergers. The Reserve Bank of India’s research, released on February 20, sheds light on the positive outcomes of past bank mergers in India. It reveals an overall improvement in financial performance, adding a positive perspective to the recent trend.

India currently has 12 public sector banks, reflecting a substantial reduction from the 27 in 2017. About a decade ago, these banks were grappling with a mountain of bad loans, prompting a series of government measures to restore their financial health. These included capital infusion and mergers, which not only bolstered their capital base but also reduced operational and administrative expenses.

Now, with these banks turning profitable, a new trend has emerged as they actively raise equity capital. Union Bank, Bank of India, Indian Bank, and Bank of Maharashtra have notably succeeded in this endeavour in the current year. This trend is underpinned by their improved valuations and signifies a positive turn in the trajectory of these financial institutions.

Rugmini Dinu