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India sets up panel to foster state bank consolidation

Government adopts 'Alternative Mechanism' to boost credit growth together with $32 bn recapitalization plan

Finance Minister Arun Jaitley, right, is the first to chair the new 'Alternative Mechanism' panel that will nudge loss-making Indian state banks towards consolidation.   © Getty Images

MUMBAI/NEW DELHI -- The Indian government is determined to deliver the banking system from its bad loan mess through recapitalization -- while ensuring weak lenders survive the process. 

Within a week of announcing a massive 2.11-trillion-rupee ($32.37 billion) recapitalization plan for state-owned banking institutions, the government rolled out a panel that will scrutinize merger proposals for banks with unsound operations -- even after fresh injections of capital. The Alternative Mechanism, as the panel is called, is intended to nudge banks towards mergers.

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