Previous Year Question
With reference to the governance of the public-sector banking in India, consider the following statements:
Capital infusion into public-sector banks by the Government of India has steadily increased in the last decade.
To put the public-sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.
Which of the statements given above is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Correct Answer: B
Detailed Solution
Statement 1 is incorrect.
The Government of India provided capital to Public Sector Banks in different years to strengthen their capital adequacy, support credit growth and address stress arising from Non-Performing Assets.
However, the amount of capital infused did not increase continuously or at a uniform rate every year. It varied according to:
the capital adequacy of individual banks;
the volume of Non-Performing Assets and provisioning;
the RBI’s regulatory requirements;
the Government’s budgetary position;
capital independently raised by banks from the market; and
the requirements of mergers and banking reforms.
The expression “steadily increased” would require the amount to rise in every successive year. Government recapitalisation figures did not display such an uninterrupted upward trend. Therefore, Statement 1 is incorrect.
Statement 2 is correct.
The merger of five associate banks of the State Bank of India with SBI became effective on 1 April 2017:
State Bank of Bikaner and Jaipur;
State Bank of Mysore;
State Bank of Travancore;
State Bank of Patiala; and
State Bank of Hyderabad.
Bharatiya Mahila Bank was also merged with SBI.
The merger sought to integrate the fragmented structure of the SBI group, improve the use of capital and resources, adopt uniform technology and risk-management systems, and reduce duplication and operating costs.
It brought the branch network, deposit base and loan portfolio under one institution. A larger combined balance sheet could also improve the capacity to raise capital, manage large exposures and diversify risks.