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Centre approves framework for proposals to amalgamate PSBs through alternative mechanism

New Delhi: The Banking Companies(Acquisition and Transfer of Undertakings)Acts of 1970 and 1980 provide that the Central Government, in consultation with the Reserve Bank of India (RBI), may make a scheme, inter alia, for the amalgamation of any nationalised bank with any other nationalised bank or any other banking institution Various committees, including Narasimhan Committee (1998) constituted by RBI, Leeladhar Committee(2008) chaired by RBI Deputy Governor, and Nayak Committe (2014) constituted by RBI, have recommended consolidation of Public Sector Banks (PSBs) given underlying benefits/synergies.

Taking note of this and potential benefits of consolidation for banks as well as public at large through enhanced access to banking services, Government, with a view to facilitate consolidation among public sector banks to create strong and competitive banks, serving as catalysts for growth, with improve risk profile of the bank, approved an approval framework for proposals to amalgamate PSBs through an Alternative Mechanism (AM). AM, after consulting RBI, in its meeting held on 17.9.2018, approved that Bank of Baroda, Vijaya Bank and Dena Bank may consider amalgamation of the three banks.

Banks have since considered amalgamation and the Board of Dena Bank has recommended the same, while Boards of Bank of Baroda and Vijaya Bank have given in-principle approval therefor. RBI has furnished bank-wise total income of PSBs and private sector banks in the financial year FY 2017-18 in this regard, which is given in Annexure.

Over the last four and half years, Government has pursued a comprehensive approach for addressing non-performing assets (NPA) issues. Key elements are as under:

Recognising NPAs transparently: Forbearance has been ended and stressed assets classified as NPAs under the Asset Quality Review (AQR) in 2015 and subsequent recognition by banks. Further, restructuring schemes that permitted such forbearance have been discontinued in February 2018. As a result, as per RBI data, Standard Restructured Assets (SRAs) of Scheduled Commercial Banks (SCBs) have declined from the peak of 6.5% in March 2015 to0.49% in September 2018.

Resolving and recovering value from stressed accounts through clean and effective laws and processes: A fundamental change has been effected in the creditor-debtor relationship through the Insolvency and Bankruptcy Code, 2016 (IBC) and debarment of wilful defaulters and connected persons from the resolution process. A sizeable proportion of the gross NPAs of the banking system are at various stages of resolution in National Company Law Tribunal(NCLT).

To make other recovery mechanisms as well more effective, Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI)Act has been amended to provide for three months imprisonment in case borrower does not provide asset details, and for lender getting possession of mortgaged propertywithin30 days, and six new Debts Recovery Tribunal (DRTs) have been established.

As a result, NPAs of PSBs reduced by Rs. 2,61,359 crore over the last four and a half financial years. Further, PSBs reported record recovery of Rs. 60,713 crore in the first half of FY 2018-19 (H1 FY 2018-19), which is more than double the recovery made in the first half of FY 2017-18, and gross NPAs have begun declining with a reduction of Rs. 26,798 crore in H1 FY 2018-19.

30-day plus overdue account (Special Mention Accounts (SMA) 1 and 2) have also reduced steadily to around 39% over five quarters (from Rs 2.25 lakh crore in June 2017 to Rs. 0.87 lakh crore in September 2018 for PSBs), indicating a significant and sustained reduction in risk of fresh NPAs.

Thus, improvement in asset quality is evident with GNPAs having peaked recognition nearly over, and the amount in SMA 1 and 2 reducing by 61% over five quarters. Further, with substantial provisioning, the provisional coverage ratio(PCR)o SCBs has risen steadily to 67.17% as of September 2018, from the pre-AQR level of 49.3% in March 2015, cushioning bank balance-sheets to absorb the impact of NPAs.

 

Reforming banks through the PSB Reforms Agenda:

 

Reforms include—

 

  • number of lenders in consortium restricted by requiring a minimum of 10%, for better-managed consortium lending,
  • ring-fencing of cash flows for prudent lending,
  • monitoring of loans above Rs. 250 crores through specialised agencies for the effective vigil,
  • use of technology and analytics for comprehensive due- diligence across data sources,
  • comprehensive checking of all accounts of Rs. 50 crore and above that turn NPA for wilful default and fraud,
  • strict enforcement of conditions of loan sanction,
  • establishment of Stressed Asset Management Verticals in banks for focussed recovery and timely and effective management of stressed accounts,
  • collection of passport details of borrowers for loans above Rs. 50 crores, and
  • enactment of the Fugitive Economic Offenders Act, 2018 in order to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.

As regards employee issues, bank branches and other bank-related issues, the same fall within the purview of the bank concerned, subject to RBI’s guidelines/instructions and Board-approved policies of the bank concerned.

 

Annexure

 

Total income in each of the PSBs and private sector banks in FY 2017-18

 

Bank

Total income during

 

FY 2017-18

 

 

 

Allahabad Bank

19,051

 

Andhra Bank

20,347

 

Axis Bank Ltd.

56,764

 

Bandhan Bank Ltd.

5,508

 

Bank of Baroda

50,430

 

Bank of India

43,752

 

Bank of Maharashtra

12,602

 

Canara Bank

48,195

 

CatholicSyrianBank Ltd.

1,422

 

CentralBank of India

26,658

 

city union bank Ltd.

3,935

 

CorporationBank

19,941

 

DCB Bank Ltd.

2,724

 

Dena Bank

10,096

 

Federal Bank Ltd.

10,912

 

HDFC Bank Ltd.

95,619

 

ICICI Bank Ltd.

72,664

 

IDBI Bank Ltd.

30,040

 

IDFCBankLtd.

10,049

 

Indian Bank

19,522

 

Indian Overseas Bank

21,848

 

IndusInd Bank Ltd.

22,031

 

Jammu & Kashmir Bank Ltd.

7,117

 

Karnataka Bank Ltd.

6,378

 

Karur Vysya bank Ltd.

6,600

 

Kotak Mahindra bank Ltd.

23,801

 

Lakshmi Vilas Bank Ltd.

3,389

 

Nainital bank Ltd.

653

 

oriental bank of Commerce

20,181

 

Punjab and Sind Bank

8,530

 

Punjab NationalBank

56,877

 

RBL Bank Ltd.

5,576

 

South Indian Bank Ltd.

7,030

 

State Bank of India

2,65,130

 

SyndicateBank

24,582

 

TamilnadMercantileBank Ltd.

3,757

 

DhanalakshmiBank Ltd.

1,116

 

UCO Bank

15,141

 

UnionBank of India

37,738

 

United Bank of India

10,556

 

Vijaya bank

14,190

 

Yes, Bank Ltd.

25,493

 

 

Source: Reserve Bank of India

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