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New Delhi: The government is again planning a mega merger in the banking sector. The plan is to merge 8 small banks into big government banks out of 12 government banks, which will leave only 4 government banks, a report said. Prior to the reported merger of banks, the main banks of the country want to relax the rules of the Merger and Acquisition (M&A) process as lenders are expected to get funds worth Rs 1.2 lakh crore from the M&A market alone. Many government banks including the State Bank of India (SBI) and Punjab National Bank (PNB) are preparing to jointly prepare master plans in this regard.
Banks are trying to create a common framework through the Indian Bank Association (IBA) so that all government banks can work together under a unified strategy. For this, banks are demanding some relaxation in the draft guidelines of the Reserve Bank of India (RBI), under which government banks will be allowed to grant loans for deal financing i.e. acquisition for the first time. Let us tell you that this rule is likely to come into force from 1 April 2026.
In the ET report, SBI and PNB want the Reserve Bank of India i.e. RBI to relax the rules of deal financing. Because under the RBI's draft rules 'Commercial Bank Capital Market Exposure Directions 2025' issued in October, banks will now be allowed to grant loans to Indian companies to purchase stakes in any other domestic or foreign company. But its limit is low, so SBI has expressed concern about this.
The largest public sector bank says that the limit of acquisition finance is not more than 10% of the bank's tier-1 capital, which is quite low. Banks believe that due to such a low limit, it will be difficult to finance big deals. In such a situation, they want its limit to be relaxed.
ET quoted a senior bank official as saying that this is the initial discussion about whether government banks can work together on a sector-wise approach. Also, a common framework can be prepared keeping in mind the vigilance norms.
According to the ET report, SBI Chairman CS Seti said that the bank will discuss this limit with RBI. At the same time, PNB CEO Ashok Chandra said in an analyst call that all banks will work together to formulate a collective strategy and bring a better policy. Through IBA, they will jointly take steps in this direction. If they get relief from the RBI, then government banks will also emerge as new powerhouses of financing corporate deals in the coming years.
According to a PwC report, 518 M&A deals were made in the September quarter, with a total value of $28 billion. This was 26% higher deals and 80% higher value than the previous quarter. On an average, the size of each deal reached 74 million dollars. Banks estimate that funds of up to Rs 1.2 lakh crore coming to them will have more capacity to lend because companies have taken 30% loans from companies under M&A deals worth Rs 10 lakh crore.
In areas where more than one bank had branches in one place, after the bank merger, they would be found in one place, which would reduce the number of branches.
Regional and zonal offices will also be closed because now there will be no separate needs.
With the merger of small government banks into big government banks, their existence will be eliminated.
Restricting the number of banks will make it easier to compete with foreign countries.
This will bring more funds to the banks, which will help in their expansion.
