Banking News

India looks to consolidate state lenders

India looks to consolidate state lenders

(29 August 2018 – India) The Indian government has asked its central bank to come up with a list of viable state lenders for merger, as well as a time frame for the consolidation, in an effort to strengthen the country’s banking system.

The request from the government is aimed at creating fewer, better-capitalised lenders and improving regulatory oversight.

State-backed lenders need to consolidate to avoid losing more market share to peers in the private sectors, the outgoing chairman of Bank of Baroda Ravi Venkatesan said last month.

Government lenders hold an estimated 90 percent of the banking sector’s nonperforming loans as 11 out of the 21 banks are operating under an emergency program, supervised by the RBI, restricting new lending.

Almost 70 percent of new deposits went to private banks in the last fiscal year and they’re estimated to have cornered 80 percent of incremental loans through 2020 as mounting bad debt erodes capital and constrains lending at state banks. Weak balance sheets and laws that require the state to hold at least 51 percent of their shares have left public lenders dependent on the government for new capital.

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