PSU bank consolidation to happen after tackling of NPAs

The Dollar Business Bureau

After approval of the merger of State Bank of India (SBI) with five associate banks, the consolidation drive in public sector banking seems to have come to a standstill. Officials from Finance Ministry said that the government intends to wait until the non-performing assets (NPA) situation is ameliorated, before pursuing further consolidation of banking sector.

The fear of jeopardising the financial health of merged behemoths has put breaks on the ongoing M&A efforts in the NPA ladden public banking sector. Meanwhile, chiefs of around 10 PSU banks, including Bank of Baroda, Punjab National Bank and State Bank of India convened with the Finance Minister to discuss a range of issues troubling India's banks. Apart from addressing the elephant in the room (NPAs), the meeting also saw deliberation on capital infusion, recent custody of bankers by the likes of CBI, and implications of GST for the banking sector.

The gross NPAs have been rising at an alarming rate in public sector banks, reaching Rs. 6,30,323 crore towards the end of September 2016, from Rs. 5,50,346 crore in June 2016. These figures present a quarterly increase of Rs. 79,977 crore.

The debt infested balance sheets of top banks are making the lending atmosphere more cautious than ever, in times of already shrinking private investment. The recent arrests of IDBI executives, in connection with the Kingfisher debacle, has added to this wave of caution.

A proposal for a national bad bank is in the making, which will help banks off-load their NPAs. Such a step could mean that the burden of recapitalisation will ultimately be borne by tax payers. But, for now, a bad bank is not on the immediate agenda as the government tries to find a solution through privately owned asset reconstruction firms.