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Wednesday, Feb 09, 2005

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Govt studying SBI Act change for takeovers, mergers

Sarbajeet K. Sen

New Delhi , Feb. 8

THE Government is considering amending the SBI Act and the SBI (Subsidiary Banks) Act to allow the State Bank group take over public sector banks, other banking companies and regional rural banks (RRBs).

The amendments under consideration would also facilitate the merger of SBI and its seven subsidiary (associate) banks.

Currently, the two laws do not allow SBI to take over its associate banks or other banks or regional rural banks (RRBs).

"To facilitate consolidation (among banks), it is necessary to expand the definition of `banking institution' contained in the SBI Act and the SBI (Subsidiary Banks) Act to include the public sector banks, subsidiaries of SBI, banking companies, perhaps also financial institutions," says the agenda papers prepared by the Ministry of Finance for the recent meeting of the Finance Minister, Mr P. Chidambaram, with CEOs of public sector banks.

On a wider canvas of banking laws, the Government is also considering amending the Bank Nationalisation Acts of 1970 and 1980 to give a wide definition to the term `banking institution' to facilitate mergers.

The proposal is to define `banking companies' to include not only commercial banks but other institutions such as RRBs and financial institutions (FIs) as well.

The Ministry has said that the absence of a definition of the term `banking institution' in the two Acts - - the Banking Companies (Acquisition and Transfer of Assets) Act, 1970 and 1980 - - has come in the way of facilitating mergers in the banking industry.

The two Nationalisation Acts may also be amended to empower the Reserve bank of India and the Central Government to frame schemes for merger of banking institution with any another entity that is governed by any other legislation.

For the past several months, the banking sector has been rife with rumours of pending mergers among public sector banks. It had been rumoured that the first such merger would be that of Union Bank of India and Bank of India.

However, the Government has clarified that it would not push for mergers but play a supportive role in consolidation moves.

The Centre feels that consolidation would not only bring in economies of scale but would enable the merged entities to face global competition.

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