The government on Friday said that it would merge 10 public sector banks into four, bringing down the number of PSU banks to 12 from 21. The PSU bank mergers would help in better management of capital, said Finance Minister Nirmala Sitharaman while announcing the proposal as a part of a package of ‘reforms’ for the economy. She also announced a series of governance of government banks in the hope that the capital infused by the government into the lenders would result in stronger banks. According to the plan:
Consolidation among public sector banks has been on the agenda for the National Democratic Alliance since 2014, when it first came into power. In 2017, State Bank of India was merged with five of its associate banks and Bharatiya Mahila Bank. In 2018, the government decided to merge Bank of Baroda with Vijaya Bank and Dena Bank. The government also allowed Life Insurance Corporation of India to take over 51 percent equity in IDBI Bank Ltd., effectively privatising it.
The Acquirer Banks In deciding on the combinations for final bank mergers, the government has picked some of the larger and relatively stronger banks to be the acquirer banks. The combined entities will control 82 percent of all public sector banks and 56 percent of all commercial bank businesses. Punjab National Bank Punjab National Bank will see itself take over Oriental Bank of Commerce and Kolkata-based United Bank of India. This will form India’s second largest public sector bank, after State Bank of India. The combined business of all three banks is 1.5 times higher than PNB’s existing business, said Sitharaman.
The combined advances base of the merged bank will be Rs 7.5 lakh crore. The deposit base will stand at Rs 10.43 lakh crore The bank merger comes at a time when PNB continues to have its own set of issues. The bank is just about recovering from the near $2 billion Nirav Modi fraud and still has a high level of non-performing assets. Its gross NPA ratio stood at 16.5 percent as of June 2019. The bank reported a capital adequacy ratio of 9.77 percent, at the end of the first quarter. To enable the bank to go through with the acquisitions, the government may have to supply more capital to PNB. The bank will receive Rs 16,000 crore worth capital from the government to complete the merger.
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