Bank Merger: Government banks are going to be merged, Nirmala Sitharaman gave big indications

Bank Merger: The Finance Minister informed that the Government and the RBI are considering various options to shape the next phase of the banking sector, including merger of existing banks and creation of new financial institutions.

Nirmala Sitharaman On Bank Merger: Speaking at the 12th State Bank of India (SBI) Banking and Economics Conclave in Mumbai on Thursday, Finance Minister Nirmala Sitharaman said India needs “large world-class banks” to meet the huge capital needs of its rapidly growing economy. She indicated that the government is working towards initiating a new round of consolidation and expansion in the country’s banking sector.

What Sitharaman said

Sitharaman said, “India needs many large banks, world-class banks. For this, we need to sit down with the Reserve Bank of India (RBI) and the banks and discuss how they want to take this forward… Work on this has already begun.” The Finance Minister also stated that the government and the RBI are considering various options to shape the next phase of the banking sector, including merging existing banks and creating new financial institutions. She stated that India’s banking system must be made more dynamic so that it can respond to growing credit demand and infrastructure financing needs. Sitharaman said, “We need to create an ecosystem and environment in which more banks can operate and grow.”

Major mergers among PSU banks may occur again

Over the past decade, the central government has consolidated several public sector banks to improve efficiency and scale. She indicated that upcoming reforms will not be limited to mergers but could go beyond that. India has witnessed two major merger waves so far. In 2017, the State Bank of India (SBI) merged its associate banks. Subsequently, in 2019, 10 public sector banks were merged to form four large banks. Following these steps, the number of public sector banks has declined from 27 to 12. According to a recent Mint report on October 27, the central government is preparing a new blueprint to re-merge selected public sector banks and streamline their operations.

A ‘Soft Touch’ Policy on AI

Speaking on the technology front, Sitharaman said that India is preparing to adopt a balanced regulatory approach towards Artificial Intelligence (AI). She said, “I am discussing AI and its regulation with both the RBI and the NITI Aayog.” He clarified that the government’s aim is to encourage innovation, but at the same time it is necessary to pay attention to national security and ethical use.

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