Govt may approve more SBI-like mergers to create global-sized banks

The government may merge smaller banks with large PSU banks such as Punjab National Bank, Bank of Baroda and Canara Bank. The government is examining the possibility of further consolidation in the public sector banking space without waiting for their finances to improve.

A preliminary round of talks have been held with the banks to prod them towards creating larger entities by merging the larger banks with the smaller ones such as Oriental Bank of Commerce, Dena Bank and Syndicate Bank.”The idea is a larger regional bank takes on a smaller bank from another region to take on a pan-India footprint. The smaller bank of course has to be a good fit in terms of managerial systems, work ethics etc.,” said officials.

government may declare some bank mergers in current fiscal
government may declare some bank mergers in current fiscal

The merger of five associate banks and Bhartiya Mahila Bank with the country’s largest lender State Bank of India (SBI) took place in April. “Internally there was a thinking after the SBI amalgamation took place to wait for the rest till the health of the banks improve. “We have now relooked at the whole system and there are some institutions within the public sector banks which can be consolidated even in the present circumstances. We are seriously examining them,” finance minister Arun Jaitley told CNBC TV18.

Even Reserve Bank of India (RBI) governor Urjit Patel in April had said the Indian banking system could be better off if some public sector banks are consolidated to have fewer but healthier entities, as it would help in dealing with the problem of stressed assets. Currently, there are 21 PSU banks in the country, including SBI.

According to experts, Punjab and Sind Bank can be merged with Punjab National Bank, while other big lenders like Bank of Baroda can take over some banks in the southern region such as Indian Overseas Bank. Similarly, Dena Bank could be merged with some large banks like South Indian bank.

On privatisation of IDBI Bank, Jaitley said that initially the government had moved substantially but the process got slowed down as it had to decide on the complicated issues related to large real estate assets of the bank in Mumbai and elsewhere.

Jaitley in 2015 had hinted at a change in IDBI Bank wherein the government would continue to hold a majority stake, yet keep it at arm’s length. Citing the example of Axis Bank, he had wondered if IDBI Bank could follow that model. But since then, there has not been much progress on the plans due to one reason or another.

IDBI Bank has a large portfolio of real estate, which was not taken into consideration during the valuation exercise. In the year ended 31 March 2017, IDBI Bank posted a net loss of Rs. 5,158 crore as against net loss Rs. 3,665 crore in fiscal 2016. The bank’s gross NPAs almost doubled to 21.25% of the gross advances in the fourth quarter of the last fiscal compared to 10.98% in the corresponding period of the previous financial year. The net NPAs were 13.21% against 6.78%.

Ministry of finance has planned to move consolidate state-run banks into mega-corporations, that to be able to stand up to competition from global banks, which will eventually have to be allowed to enter India as part of either a WTO deal on services or as part of bilateral or regional free trade pacts.

The government is keen that the wave of consolidation is kicked off early as it fears that at the next WTO round, developed countries will try to barter greater market access for India’s software and medical services with the opening up of financial and other services by the developing countries.