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Context:
- The Union Cabinet has approved the setting up of panel of ministers, to decide on consolidation proposals for Public sector banks
Introduction:
- The Finance Ministry is ready to provide capital support for facilitating consolidation among state-owned banks, which are reeling under mounting bad loans
- With this, the government seeks to consolidate 21 state-owned banks in the country.
- Details of the banks to be merged are yet to be announced.
- There are now 20 public sector banks (PSBs) other than SBI. These state –owned banks are grappling with Rs 6 lakh crore worth of non-performing assets (NPA), which is about 75% of the total distress.
- After in –principle approval for consolidation, the banks would take steps in accordance with the SEBI requirements.
- The merger could take into account the asset quality, capital adequacy ratio, profit and locations of banks.
Background:
- In the past one month, the PSU Bank index had under-performed the market by falling 8%, against less than 2% decline in Nifty 50 and Nifty Private Bank index.
- The government had approved the merger of SBI’s five associate banks with itself.
- In March, the Cabinet also approved the merger of Bharatiya Mahila Bank (BMB) with SBI.
What are the challenges that Indian Banking System is facing?
- The Indian banking system presently is facing huge challenges including the bad loan problem that has plunged many public sector banks in an unprecedented crisis.
- India’s central bank has some big concerns about the sustainability of the country’s banking system.
- India’s  banks are struggling with the stresses assets problems.
- In its bi annual financial stability report released recently, the RBI warned that the banking sector is under severe stress, with mounting bad loans and an increase in bank fraud, among other issues.
- Weak investment demand, partly emanating from the twin balance sheet problem is a major challenge.