Govt. announces mega PSU Banks merger
NEW DELHI : State-run banks will be merged to form a dozen strong lenders, Finance Minister Nirmala Sitharaman announced on Friday. The Punjab National Bank, Oriental Bank of Commerce and United Bank will merge to form the country’s second largest public sector bank with a business of Rs. 17.95 lakh crore, “1.5 times the size of Punjab National Bank”.
An analysis of the data provided by the finance ministry’s presentation shows that the larger banks stand to benefit more in terms of capital adequacy than the smaller lenders, a sharp departure from past practice in which government infused capital in their balance sheets year after year.
For instance, while Canara Bank had a capital adequacy ratio of 11.9% and Syndicate Bank’s capital adequacy ratio was at 14.23%, the merged entity will be at 12.63%. Barring Indian Bank, all larger banks among their respective merger sets have lower capital adequacy ratio than the ones they are taking over.
The announcements on bank consolidation comes a day after the Reserve Bank of India (RBI) said in its annual report that frauds in the banking system increased 74 per cent to Rs.71,543 crore in financial year 2018-19.
The government on Friday announced the merger of 10 public sector banks (PSBs) into four large banks. These four sets include the outcome of Canara Bank and Syndicate Bank merger; Indian Bank and Allahabad Bank merger; the bank arising from the merger of Union Bank of India, Andhra Bank and Corporation Bank; and the entity that arises from the merger of Punjab National Bank,
Oriental Bank of Commerce and United Bank of India. It has left untouched six other banks, of which two will have national focus and the remaining will have regional focus.
A sharp deceleration in manufacturing output and subdued farm sector activity pulled down India’s gross domestic product (GDP) growth to 5 per cent in the April-June quarter.
Now, with the government and the Reserve Bank having common prescription, the economy should bottom out soon and things should improve in the coming quarters, Assocham President B K Goenka said. The government announced four major mergers of public sector banks, bringing down their total number to 12 from 27 in 2017, a move aimed at making state-owned lenders global sized banks.
United Bank of India and Oriental Bank of Commerce will be merged with Punjab National Bank, making the proposed entity the second largest public sector bank (PSB). Commenting on the consolidation exercise, Ficci President Sandip Somany said the decision reflects the government’s commitment to providing the country with the financial base on which we can grow and move towards the $5 trillion marks.
Goenka said these mergers would result in better banking to customers, more credit to the industry and agriculture, professional governance structure and greater autonomy and accountability of the bank boards.
Bank consolidation is a good move from the government towards improving the efficiency of the PSBs, Prakash Agarwal, Head-Financial Institutions, India Ratings and Research said.
Commenting on the GDP numbers, CII President Vikram Kirloskar said the moderation in the growth print was not completely unexpected but at the same time does reinforce the concerns that industry has about entering a phase of a slowdown. While not at variance with global growth trends, CII hopes that India should buck the trend with appropriate interventions from the government, he said
The Canara Bank will join Syndicate Bank; Union Bank of India, Andhra Bank and Corporation Bank will merge, and Indian bank will merge with Allahabad Bank. Together, they will hold business worth Rs. 55.8 lakh crore.
After the mega PSU bank consolidation, there will be 12 public sector banks in the system instead of 27, the Finance Minister said. Announcing steps to empower the public sector banks, the Finance Minister said a board committee of nationalised banks will appraise the performance of general managers and higher positions.
For the first time, Chief Risk Offers will be recruited at market-linked compensation to attract best available talent. The government further said PSU banks will be repositioned to take the economy to the $5-trillion mark, with wide ranging reforms, financially stronger and well-provisioned lenders, technology-driven banking, synergy and stronger governance.
The RBI also said that the average lag between the date of occurrence of frauds and its detection by banks stood at 22 months. In its bid to push investments and revive growth, the government has announced a range of measures in the past few days, including easing of FDI or foreign direct investment norms in four sectors, and a reversal of higher taxes on foreign investors as announced in Budget.(With Agency Inputs ).
