"There have been some suggestions for consolidation of public sector banks. Government, in principle, agrees to consider these suggestions," he said in his maiden Budget speech on Thursday.
Later, Jaitley said the consolidation would be between a big bank and its subsidiaries, and with important reforms anything would be possible.
"I intend to give lot of autonomy but important reform with regard to banks is financial inclusion because if they have more money they will be able to expand faster," he said.
According to sources, the merger of one of the associates with the State Bank of India would be complete within the current financial year, ending March 31, 2015.
Later, at a customary post-Budget briefing, Financial Services Secretary G S Sandhu said, "We are examining the proposal (for consolidation)."

PSU banks to raise Rs 2.40 lakh crore capital by 2018

The Finance Minister also said these lenders would require Rs 2.40 lakh crore capital by 2018 to meet global Basel III norms.
"To be in line with the Basel III norms, there is requirement to infuse Rs 2.40 lakh crore as equity by 2018 in our banks (public sector banks). To meet this huge capital requirement, we need to raise additional resources to fill this obligation," he said before the Parliament.
A large part of this fund would be raised through public offers made to retail customers, he said.
"While preserving the public ownership, the capital of these banks would be raised by increasing the shareholding of capital in the phased manner through sale of shares largely through retail common citizen in the country," he said.
"Thus, while the government would continue to hold majority shareholding, the citizen of India will also get direct shareholding in the bank which they currently hold indirectly," he added.

The interim budget had announced infusion of Rs 11,200 crore in public sector banks to enhance their capital in the current financial year.
Presently, there are 27 public sector banks including SBI and its subsidiaries.

Bankers welcome Budget, say it ushers in growth environment

Bankers hailed Jaitley's maiden budget, saying it would create an enabling environment for future growth.
"It is a very pragmatic and balanced budget...it focuses on creating necessary framework which will help in sustaining growth in the future," state-run Bank of Baroda Chairman & Managing Director S S Mundra said.
Focus on the fiscal prudence, push for both rural and urban infrastructure, skill upgrading, inclusive growth and emphasis on public-private partnerships are the key factors that will help achieve a higher growth, Mundra said.

Mundra, however, pointed out that the state-run lenders will have to contend with no extra capital this fiscal as Jaitley did not spell out any announcement in this regard.
The ability to raise long-term bonds will reduce the cost of borrowings and improve margins as resources get allotted to productive use due to the concessions on the CRR and SLR front, Mundra said.

"The budget emphasises a bottoms-up approach to reignite growth," SBI Chairperson Arundhati Bhattacharya said.
Describing this budgetary measure as a positive move, Bhattacharya said, "It will prevent undue stress in repayment of infrastructure loans and will also reduce user charges."
She also welcomed the pronouncements on the consolidation of banks, saying it should be done in a time-bound manner.     

Apart from that, Bhattacharya said moves on opening six new debt recovery tribunals at a time when banks are saddled with asset quality stress, and increasing the tax deduction limit under section 80C, which enhances the financial savings, are welcome moves.
SBI, which has a large MSME funding book, feels that efforts to redefine the MSME sector and also setting up a fund for the sector is a big positive, she said.

State-run IDBI Bank Chairman & Managing Director M S Raghavan said, "The budget is optimistic and pragmatic and addresses the twin challenges of controlling inflation and providing a boost to manufacturing."

He said attempts at reviving the capital markets will also help the industrial sector and give the much-needed lease of life to many enterprises.

Expected more from Budget for state-run banks: Analysts

Analysts, however, said while the Finance Minister did present a roadmap of things to come in the banking space, his maiden Budget has left much to be desired for the sector.

"Some bolder measures on the transformation and reforms in the working of the public sector banks would have been better. Probably our expectations were a bit too high," Boston Consulting Group India partner and director Saurabh Tripathi said here.

"Roadmap wise, the Budget gives us clarity that the government will go to the public rather than pumping in its own money to recapitalise banks," consultancy firm EY partner for financial services Sameer Gupta said.

At least two analysts said the looming threat of agitations by unions would have prevented the minister from spelling out his agenda.

Analysts at ratings agency India Ratings welcomed the move to allow banks to raise long-term money to fund infrastructure projects by issuing bonds, saying the saving on the CRR and SLR will help the net interest margin.

However, commenting on the same move, another analyst said some concessions on the priority sector lending (PSL) requirements are also essential as the enlarged infrastructure book puts pressure on the low yielding PSL.

Consultancy firm Deloitte's senior director Monish Shah said the announcement to have uniform KYC norms across financial products is also a welcome move as it is very convenient and will help save time for customers.


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