Cabinet approves framework for consolidation of public sector banks

The Union Cabinet on Wednesday gave its in-principle approval for the merger and consolidation of public sector banks.

Adrdressing the media after Cabinet meeting, Jaitley confirmed the reports of Prime Minister Narendra Modi's approval to the consolidation of PSBs by merging some of the lenders. 

"Government to constitute alternative mechanism to oversee consolidation of PSU banks. Consolidation of PSU banks will be based on commercial considerations," he said. Earlier today, it was reported that a group of ministers (GoM) will be formed for the merger of state-run banks, and the names of the banks for the merger will be submitted to the GoM.

Meanwhile, shares of public sector banks have gained on the news, with the Nifty PSU Bank index gaining as much as 1.8% to 3,290.4 points. Allahabad Bank was the top gainer, up 4.9%, while Bank of India shares jumped 3.8%; Punjab National Bank rose 3.44%; Bank of Baroda gained 1.6 %; and India’s largest lender SBI was up 1.37%.

State Bank of India had in April merged its five associate banks and Bharatiya Mahila Bank with itself.  The development comes as part of the government's plan to push for consolidation of PSBs in order to help them to gain efficiency and scale and also avoid repeated capital infusions.