Mega bank mergers: Govt attempts a googly to tackle bad loans

Nirmala Sitharaman

Nirmala Sitharaman announces large-scale mergers of big banks to make 'path clear for $5 trillion economy'

Union Bank of India merges with Andhra Bank and Corporation Bank and the entity will become the fifth-largest public sector bank now. The government in its release said that the consolidation will unlock the potential of these entities as bigger banks who have enhanced capacity with higher credit and risk appetite.

As a part of the merger, Punjab National Bank (PNB) will be merging with Oriental Bank and United Bank which will be the second largest public sector bank in India.

Post the consolidation announced on Friday, Punjab National Bank will have business size of Rs 17.94 lakh crore, becoming the second largest PSB after SBI with a business of Rs 52.05 lakh crore.

"Canara Bank with (merge) Syndicate Bank, they will be the fourth largest Public Sector Bank with business of Rs 15.20 lakh crores", he added. For example, the merger of Indian Bank and Allahabad Bank will give opportunities to employees to move from North to South, or the other way round. India will now have 12 Public Sector Banks from 27. They should also enjoy the benefit of scale and synergy in terms of current and saving accounts (CASA) as well as reach, number of branches and employees. The bank's lower bad loans and stronger capital adequacy ratio has been a big draw for investors. Also, dealing with the redundant workforce and branches will be hard, considering that bank employees' unions are strong and they have been against mergers. Among others, United of Bank of India has a net NPA 8.67 percent as on 31 March, PNB 6.55 percent, Oriental Bank of Commerce 5.93 percent, Canara Bank 5.37 percent, Syndicate 6.16 percent, Union Bank 6.85 percent. The combined advances base of the merged bank will be Rs 6.61 lakh crore and the deposit base will stand at approximately Rs 8.6 lakh crore. The remaining four banks are still under the RBI's Prompt Corrective Action. Sitharaman also announced a rough break up of capital infusion intended for individual banks out of the Rs 70,000 crore announced in the 2019 Union Budget.

In January this year, the Union Cabinet had approved merger Dena Bank and Vijaya Bank with Bank of Baroda. "You're merging commercially, economically viable, compatible entities".

Professionally managed banks Sitharaman also promised to ensure that these merged banks will be run professionally while shedding some of bureaucratic pains that have dogged public sector institutions.

Four bank mergers have been listed by the Finance Minister.

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