As a way to recapitlise the crippled state-owned lenders, the government had in August announced merger of 10 PSBs into four. Under the scheme, Oriental Bank of Commerce and United Bank of India will merge with Punjab National Bank creating the second largest public sector lender after the SBI; Syndicate Bank would merge with Canara Bank; Union Bank would take over Andhra Bank and Corporation Bank; and Allahabad Bank would merge with Indian Bank.
The process, likely to be completed by March, will see the number of state-owned banks coming down to 12 from 19 now and as many as 27 in 2017.
In FY19, the government had merged Vijaya Bank and Dena Bank with Bank of Baroda and in 2017, the State Bank absorbed five of its associates along with the Bharatiya Mahila Bank.
"The merger of PSBs is likely to transform the face of our banking sector with the emergence of stronger, well-capitalised banks aided by cutting-edge technology and state-of-the-art payment systems. Our banks have the potential to become global baking leaders," the Reserve Bank of India said in its annual report on 'trends & progress of banking 2018-19', released on Tuesday.
The report also warned banks about the rising competition from fintech and other large tech companies and noted that the global growth slowdown has impacted the financial system worldwide, especially banks, which is visible in their plunging profitability and shrinking balance-sheets.
"Banks are facing increasing challenges from non-traditional players such as fintech and big technology firms which are taking advantage of digital innovation," the report warned.
It can be noted that the global tech giants like Google, Amazon, Whatsap/Facebook and domestic players like Paytm and tens of dozens of small tech players are chipping away a large portion of the payments market.
On the crippled NBFCs, the report expects them to come out of the mess faster as the liquidity situation has been improving since recent months.
As liquidity strains recede, and solvency shored up, NBFCs are expected to regain their niche and expand their reach, the report said.
Going forward, the need of the hour is to continue the policy coordination with a view to developing the banking system on one hand and securing a competitive and resilient non-banking sector, it added.
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