Banking for Beginners

On Friday 30 th August When FM Sitharaman announced merger of several Public sector banks, she metamorphosed Indian Banking industry forever. From structural point of view, this is being considered as the biggest game changer after nationalization of Banks in two tranches on 19 th July 1969 and 15 th April 1980. Biggest consolidation exercise in Indian banking industry will result in merger of 10 banks into 4, thus reducing the total number of Public sector banks from 27 in 2017 to 12 now.  To summarize, United Bank of India and Oriental Bank of Commerce shall merge into Punjab National Bank, Syndicate Bank into Canara Bank, Allahabad Bank into Indian Bank and Andhra Bank alongwith Corporation Bank shall merge with Union Bank of India. Seeds of this consolidation exercise were sown 28 years back in 1991, when the Committee on Financial system headed by former RBI Governor M Narsimhan had recommended   3-4 mega Banks at the top who can have a Global footprint with other Banks

On Monday 26 th  August 2019, Reserve Bank of India (RBI)’s Central board accepted the recommendations of a committee headed by former RBI Governor Bimal Jalan and decided to transfer a sum of Rs. 1,76,051 crore to the Government.  Jalan committee was constituted in December 2018 to re-evaluate RBI’s economic capital framework (ECF) and to examine as to how much and in what form RBI should maintain its Capital structure. What has been done this year is not new. Every year RBI transfers funds to Government representing surplus of income over expenditure. In the last 10 years this amount has varied from    Rs.  18,759 crores (2009-10), Rs. 15,009 crores (2010-11) Rs. 16,010 crores (2011-12), Rs. 33,010 crores (2012-13(, Rs. 52,679 crores (2013-14) Rs 65,896 crores (2014-15),    Rs 65,876 crores (2015-16), Rs. 30,659    crores (2016-17) to Rs. 50,659 crores (2017-18). What has changed this year is the quantum of sum transferred. This has spurred a general public debate about t