Further consolidation in PSU banks after improvement in NPA

Days after the Cabinet approved merging five associate banks with SBI, Finance Ministry officials today said further consolidation in public sector banking may have to wait till bad loans situation improves.

The government may not like to go in for further consolidation in public sector banks till the NPA situation improves, sources said.

Merging PSU banks at their current health is not a good option as it has potential to undermine the performance of the merged entity, officials added.

Meanwhile, heads of the top 10 PSU banks, including SBI, PNB and BoB, had meeting with the Finance Minister where host of issues where discussed including current NPA situation, capital infusion and GST implementation from the banks' perspective.
 
According to sources, the arrest of bankers by investigating agencies also came up during the meeting.

Recently, former top officials of IDBI Bank were arrested by CBI in connection with Kingfisher Airlines case, putting bankers to become extra cautious resulting in slowdown in processing of loan proposals.

The meeting also discussed the problems faced by banks in faster resolution of stressed assets.

As on September 30, 2016 gross NPAs of public sector banks rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June end.

This works out to an increase of Rs 79,977 crore on quarter on quarter basis.

As far as recapitalisation of public sector banks are concerned, the government may carry forward the fund infusion amount to next fiscal if there is no suitable candidate.

The remaining amount for bank recapitalisation (which is Rs 2,085 crore) can be carried forward to the next year, sources said.

With regard to IDBI Bank stake sale, sources said, it is very much on the government agenda.

The government is working on new strategy for IDBI Bank stake sale as the bank has huge real estate which investors are overlooking.

Bad bank proposal is not on the immediate agenda as the government wants to try private sector asset reconstruction companies, sources said.