DFS Secretary Withholds Comments on PSB Merger, Privatisation Amid Elections

In a recent statement, Financial Services Secretary Vivek Joshi addressed inquiries regarding the potential merger or privatisation of Public Sector Banks (PSBs) amidst the ongoing Lok Sabha Elections. Joshi emphasized that it would not be suitable to discuss such matters during the election period. This statement came in response to speculations and media reports hinting at the government's consideration of merging PSBs as an alternative to privatisation.

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The government has previously undertaken consolidation efforts within the public banking sector, executing two major rounds of mergers. The most significant consolidation occurred on April 1, 2020, transforming 10 PSBs into four larger entities. This included the merger of Oriental Bank of Commerce and United Bank of India with Punjab National Bank; Syndicate Bank with Canara Bank; Andhra Bank and Corporation Bank with Union Bank of India; and Allahabad Bank with Indian Bank. An earlier merger saw Vijaya Bank and Dena Bank integrate into Bank of Baroda as of April 1, 2019.

Regarding the Reserve Bank of India's (RBI) recent draft circular proposing higher provisioning for loans to under-construction infrastructure projects, Joshi clarified that these are preliminary guidelines still open for stakeholder feedback. The Indian Banks Association among other industry bodies is expected to contribute their insights, with the Department of Financial Services (DFS) providing its input during the consultation process. The RBI's proposal suggests a tiered provisioning approach for infrastructure loans, starting at 5% during the construction phase, reducing to 2.5% upon project operation commencement, and further decreasing to 1% following the achievement of sufficient cash flow for debt servicing.

At the Confederation of Indian Industry (CII) Annual Business Meeting, Joshi projected India's ascent to become the world's third-largest economy within the next three years. Currently ranked as the fifth largest with a GDP estimated at USD 3.7 trillion, India is on track to reach a USD 5 trillion economy in this timeframe.

Joshi also touched upon the progress of the account aggregators scheme, indicating ongoing discussions between the DFS and RBI to enhance its success and security. Account aggregators facilitate the sharing of financial data between providers and users with customer consent.

Furthermore, Joshi shared updates on the Emergency Credit Line Guarantee Scheme (ECLGS), revealing that loans amounting to Rs 2.68 lakh crore have been disbursed to approximately 1.19 crore beneficiaries. Launched as part of the Aatmanirbhar Bharat Abhiyan package by Finance Minister Nirmala Sitharaman in May 2020, the ECLGS aims to alleviate Covid-19 lockdown-induced distress by extending credit support to various sectors, notably Micro, Small and Medium Enterprises (MSMEs).