Finance Minister Nirmala Sitaraman announced a series of mergers involving 10 state-owned banks, as the country moves to strengthen a sector struggling under a mountain of debt and ensure stronger balance sheets to boost lending and revive economic growth.
The mergers cut the number of state-owned banks to 12 from 27 in 2017, and aimed at cleaning up the banking sector and reducing the number of state-run banks, a Reuters report said.
The government has injected roughly $36bn of taxpayers’ money into state-run banks over the last five years to revive the sector.
Sitaraman said the Oriental Bank of Commerce and United Bank would be merged with New Delhi-headquartered Punjab National Bank, creating the country’s second largest lender after the State Bank of India.
The government also announced that two lenders based in southern India, Canara Bank and Syndicate Bank, would be amalgamated.
In addition, Andhra Bank and Corporation Bank are to merge with Union Bank, while Indian Bank will merge with Allahabad Bank.
The banks’ merger initiative comes at a time when India’s economy expanded at its weakest pace in more than five years in the April-June first quarter.
Recently, India released data showing its economic growth in the April to June quarter fell to 5%, the weakest in more than six years.
A Reuters poll showed India’s consumer demand and private investment have weakened at a time global trade frictions dampened business sentiment.
The median figure from the poll of economists is for annual growth in gross domestic product of 5.7% in the quarter, compared with 5.8% in the previous three months and 8% for the same period of 2018.
Many economists say India’s economic slowdown could continue for the next two to three years as the economy faces serious structural issues of a slowdown in consumer demand and decline in manufacturing growth.
Many indicators - automobile sales, rail freight, petroleum product consumption, domestic air traffic and imports - are signalling drops in domestic consumption.
In July, auto sales tumbled 31% from a year earlier, the biggest decline in nearly two decades, resulting in the loss of hundreds of thousands of jobs.
The unemployment rate rose to 7.51% in July from 5.66% a year earlier, according to the Centre for Monitoring Indian Economy, a private think tank in Mumbai.
Industry chambers including the Ficci are lobbying for a cut in Goods and Services Tax rate on passenger vehicles and cement to revive growth, warning that falling sales could force more job cuts.
To boost investment in the country and aid sectors such as banking and auto manufacturing, the government has been taking steps such as approval for 100% foreign investment in coal mining and eased rules in contract manufacturing and single-brand retail sectors.
But whether these measures will help put the Indian economy back on a high-growth path and achieve the country’s targeted $5tn economy in five years remains to be seen.