The Union Minister of Finance and Corporate Affairs, India, Smt. Nirmala Sitharaman, recently announced certain reforms in the financial sector on 30-08-2019. The Government of India aims to increase the Gross Domestic Product (GDP) of the Indian economy from USD 2.6 Trillion in 2017 to USD 5 Trillion in 2024 and stronger banks are an imperative for a USD 5 Trillion economy.
The Government has so far introduced certain productive reforms in the financial sector, a few of which have been listed below. These reforms are said to have increased the profitability of public sector banks (PSBs), reduced the gross non-performing assets (NPAs), etc:
- Specialized agencies in place to monitor loans worth more than Rs. 250 Crores
- Introduction and implementation of the Fugitive Economic Offenders Act, 2018 as amended thereof (the Act) to confiscate properties and assets of economic offenders who evade prosecution by remaining outside the jurisdiction of Indian courts
- Launch of PSBloansin59minutes.com, a digital lending platform for approval of business loans (term loan /working capital loan) applied by micro, small and medium enterprises (MSME) ranging from INR 1 Lakh to INR 5 Crores in less than 59 minutes from public and private sector banks and non-banking financial companies (NBFCs), and so on.
Thus, the Government has further introduced certain notable reforms in the financial sector, a few of which have been listed below:
Amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank-
As a result of this consolidation of banks, there would be enhanced capacity to increase credit, stronger presence of big banks in India as well as other countries, less cost of lending due to better operational efficiency, strong growth in retail loan, and increase in profitability.
Consolidation of Punjab National Bank, Oriental Bank of Commerce, and United Bank-
This consolidation would make it the 2nd largest PSB in India with business of Rs. 17.95 Lakh Crore and the 2nd largest branch network in India, with 11,437 branches, and also ensure increased lending capacity, increased current and savings account ratio (CASA), etc.
Consolidation of Canara Bank and Syndicate Bank-
This consolidation would make it the 4th largest PSB in India with business of Rs. 15.20 Lakh Crore and the 3rd largest branch network in India, with 10,342 branches.
Consolidation of Union Bank, Andhra Bank, and Corporation Bank-
This consolidation would make it the 5th largest PSB in India with business of Rs. 14.59 Lakh Crore and the 4th largest branch network in India, with 9,609 branches, and also ensure increased business for the consolidated bank, higher CASA ratio, etc.
Consolidation of Indian Bank and Allahabad Bank-
This consolidation would make it the 7th largest PSB in India with business of Rs. 8.08 Lakh Crore having a nationwide network in India, and stronger presence in South, North and Eastern parts of India, and also ensure increased business, higher CASA ratio, enhanced lending capacity, etc.
As per various newspaper reports, although these consolidations would not lead to employee retrenchment but it is anticipated that there would be offers for voluntary retirements and/or transfers of employees soon.
Further, in order to strengthen the working system of these consolidated banks, the Government has proposed better board committee and risk management committee functioning, accountability of top management to the board committee of nationalized banks, training of directors, etc. These Government reforms may help the country to reach the goal of USD 5 Trillion economy by 2024.
Senior Legal Associate
The Indian Lawyer