Governance Now Masterminds

No criminality in business default: PSB consolidation from April

Bill would provide ‘ease of living’ for law-abiding corporates, de-clog criminal justice system

GN Bureau | March 4, 2020


#Union cabinet   #finance ministry   #Companies Act   #banking   #Public Sector Banks   #Nirmala Sitharaman  


Genuine and bona fide default in business will no longer lead to the tag of criminality and punishment, as the government has decided to amend the company law. The union cabinet, chaired by prime minister Narendra Modi, on Wednesday approved the Companies (Second Amendment) Bill, 2019 to amend the Companies Act, 2013. The cabinet approved the mega consolidation of ten public sector banks (PSBs) from April 1.

The bill would remove criminality under the Act in case of defaults, finance minister Nirmala Sitharaman explained. Criminality can be determined objectively. This will bring relief in cases of defaults where the element of fraud is lacking or which do not involve larger public interest. This would also lead to further de-clogging of the criminal justice system in the country. The Bill would also further ‘ease of living’ for law-abiding corporates.

Earlier, the Companies (Amendment) Act, 2015 amended certain provisions of the Act to remove difficulties faced in implementation of various provisions of the Act.

Meanwhile, in another decision, the cabinet approved the consolidation of public sector banking on the following lines:

(a)  Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank
(b)  Amalgamation of Syndicate Bank into Canara Bank
(c)  Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India
(d)  Amalgamation of Allahabad Bank into Indian Bank

The amalgamation will result in the creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rs 8 lakh crore. It would help create banks with scale comparable to global banks and capable of competing effectively in India and globally. Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system, said an official note.

In addition, consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach.

Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape.

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