Economy

India's economic growth slows to 5%, Economy News & Top Stories

India's economic growth slows to 5%, Economy News & Top Stories

INDIA announced a series of mergers involving 10 state-owned banks on Friday, as it moves to strengthen a sector struggling under a mountain of debt and to ensure stronger balance sheets to boost lending and revive economic growth. "As per the announcement, Indian Bank will be merged with Allahabad Bank; Punjab National Bank, Oriental Bank of Commerce and United Bank of India to be merged; Union Bank of India, Andhra Bank, and Corporation Bank are to be merged and lastly Canara Bank and Syndicate Bank are also to be amalgamated as one".

Oriental Bank of Commerce and United Bank merger will merge into Punjab National Bank to create a bank with Rs 17.95 lakh crore business and 11,437 branches.

As a mark of protest to the government's decision, employees of all public and private sector banks wore black badges to work. India will now have 12 state-run banks instead of 27.

SBI Chairman Rajnish Kumar said, "Today's announcements also underline the fact that the government recognizes the importance of a robust banking system in achieving the goal of Dollars 5 trillion economy as bigger banks will be better armed to meet the credit needs of a fast growing economy like India". The Centre also announced a capital infusion to the tune of Rs 55,250 crore. See the example of three banks merging with Bank of Baroda.

To boost investment in the country and aid sectors such as banking and auto manufacturing, the government has been taking steps such as approval for 100% foreign investment in coal mining and eased rules in contract manufacturing and single-brand retail sectors.

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Prior to BoB merger this year, the government had experience of State Bank which had merged five of its associate banks - State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bhartiya Mahila effective April 2017.

Chairman and chief executive officer, Edelweiss Group, Rashesh Shah said, "The consolidation in the banking sector will create higher efficiencies through better utilization of capital, greater credit disbursal, focused customer service and global expansion opportunities".

"The consolidation will aid economies of scale for these banks, resulting in improved cost of funds and operating efficiency", said Mona Khetan, a banking analyst at Reliance Securities. "The decision will be discussed by the board", he said. They have said there has been no attempt to merge weak banks with strong ones or some geographical considerations have been applied. Is this the formula for India to reach $5 trillion economy target?

"However, given the sizeable capital infusion being announced for these 10 banks, the merger is unlikely to credit negative for merging banks", Gupta said.

When asked about the rationale for doing all the four mergers together, Kumar said, "We wanted to do it one time, give the road map and remove the uncertainty".