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Sarbajeet K. Sen

The Finance Ministry feels that the absence of a clear and elaborate definition of `banking institution' in the various legislations would come in the way of bank mergers.

New Delhi , April 20

PLANS for public sector bank mergers may have been put on hold, but the Government is busy creating a perfect setting for the matchmaking exercise to begin.

In what would provide a clear signal that consolidation among PSU banks is very much on the financial sector reforms agenda despite political opposition, the Ministry of Finance has decided to press ahead with the amendments required to remove legal hurdles for such mergers.

"We will go ahead with the amendments that would be needed to facilitate bank mergers. Mergers may not have taken place, but they will surely happen sometime or the other. We have to have the enabling provisions in place," highly placed officials of the Finance Ministry said.

Amendments are likely to be proposed in several pieces of legislation including the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, the State Bank of India Act and the SBI (Subsidiary Banks) Act.

Among the amendments required in the banking laws to facilitate mergers is to properly define the term `banking institution' in the nationalisation Acts of 1970 and 1980 as well as in the SBI Act and the SBI (subsidiary banks) Act. While on the one hand this would allow the nationalised banks to take over not only commercial banks but also other institutions such as regional rural banks (RRBs) and financial institutions, on the other it would allow SBI to take over other public sector banks.

The Finance Ministry feels that the absence of a clear and elaborate definition of `banking institution' in the various legislations would come in the way of bank mergers.

The Ministry is also understood to be contemplating amendments to empower the RBI and the Central Government to frame schemes for merger of banking institution with other entities that are governed by any other legislation.

However, there has been severe opposition from the Left parties and the bank unions forcing the Government to set aside formal moves on mergers pending an amicable resolution of the issue at the political level. Officials said that efforts are still on at a political level to resolve the differences over the merger. "We would have to wait for the outcome of the discussions with the Left parties," officials said.

Unable to take the Left parties on board, the Government could not announce a single merger of PSU banks during 2004-05, though it had earlier set itself a target of catalysing at least two mergers during the fiscal.

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