M&A not the only route to more banking efficiency: govt

While bank mergers was at the top of the agenda at the 'Gyan Sangam' banking retreat in Pune that ends today, a senior government official told the conclave that M&A was not the only route for consolidation of India's state-run banks.

Creating a mechanism for easier access to capital would also improve the public sector banks' balance sheets, secretary for financial services Hasmukh Adhia said.

"This (consolidation) does not necessarily mean that we are only thinking of mergers and acquisitions … if we have to give better support to banks, if the banks have to play a complimentary role, can we think of some other structures by which it is easy for the banks to manage their affairs, it is easy for them to get capital from the market and it is easy for them to improve the balance sheets," he said.

Consolidation of government-run banks has been slow so far, partly due to opposition by workers' unions. But the conclave, earlier addressed by Prime Minister Narendra Modi and finance minister Arun Jaitley among others, aims at speeding up the process. (See: Bank mergers to top agenda at PM-led 'Gyan Sangam' retreat)

There are as many as 27 public sector banks, including five associates of the State Bank of India, the country's largest lender.

Finance minister Arun Jaitley in his first budget speech in July had also mentioned the government's intention to go in for mergers and acquisitions of public sector banks.

Talking about the need to have a relook at the priority sector lending target, Adhia said, "We would like to generate ideas on what could be the priority sector prescription for banks in view of the present state of the economy."

Currently, banks have to lend 40 per cent of their total credit exposure to priority sectors, which include agricultural loans and loans to minorities.

Economists point out that neither of these objectives has been achieved, as agriculture continues to employ more people than it can support and minorities remain marginalised.

"The economy has had a major shift from 1969 till now. Now we are into a different era. For example, food processing would be very important for agriculture growth, but does not feature on the priority sector items," the finance secretary said.