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Govt drops bank M&A plans
February, 09th 2010

The government has decided not to take any fresh initiatives to discuss mergers and acquisitions (M&As) among public sector banks, following adverse views expressed by the Reserve Bank of India (RBI) and reservations from political quarters.

In December last year, the finance ministry had asked five state-run banks Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda and Bank of India to explore merger opportunities in the banking industry.

Now, ministry officials and senior bankers familiar with the development confirmed to Business Standard that the finance ministry has decided to shelve the idea.

No bank has approached the government with any merger plan or target yet. Only some big banks are open to the idea, but nothing can happen unless there is some political will and consensus, which is not emerging. Bank unions have also opposed the move, a finance ministry official said.

There is no plan for a further debate on the matter unless some banks approach the government with a proposal for consolidation, which is highly unlikely in the present circumstances. No bank is thinking on those lines, the chairman of a large public sector bank added.

When the initiative was initially discussed, the finance ministry had not involved RBI in the process because it said the talks were informal. It was planning to consult the central bank only after some merger plans were firmed up.

But, RBI has clearly stated its aversion to M&As, saying financial inclusion and not bank consolidation should be the priority. In November, RBI Deputy Governor K C Chakrabarty had said consolidation in the sector can wait and the need of the hour was to extend banking services to more citizens.

The December meeting took place between Additional Secretary (Financial Services) G C Chaturvedi and the five bank chairmen.

After this meeting some consultants, including McKinsey, Ernst & Young, approached the government and made presentations on possible mergers and a roadmap for consolidation. Finance ministry officials said they had not invited the consultants.

One of the consultants, however, said Finance Secretary Ashok Chawla made a presentation to Finance Minister Pranab Mukherjee on consolidation in December, in which some of the consultants suggestions were incorporated.

Financial Services Secretary R Gopalan had recently clarified that the government would not force banks into consolidation, but will bless marriages if the management of two banks came forward.

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