New Delhi, Aug 30 (IANS) The government on Friday announced the
mega-merger of 10 PSU banks into four, where the Punjab National Bank,the Oriental Bank of Commerce and the United Bank to merge become the
second-largest PSB while the Canara Bank and the Syndicate Bank will
amalgamate to make the fourth-largest PSU bank entity.
Also in the series of mergers announced by Finance Minister Nirmala
Sitharaman at a briefing here, the Union Bank, the Corporation Bank,
and the Andhra Bank will be merged to become the fifth-largest PSU
bank and the Indian Bank and the Allahabad Bank merge to be the
Post consolidation, the number of PSU banks will come down from 27 to
12 and this, according to Sitharaman, was "the right number of PSU
banks to have".
"The mergers would help in better management of capital," she said,
while announcing the merger proposal as a part of a package of reforms
for the economy.
She also announced a series of governance reforms for government banks
in the hope that the capital infused by the government into the
lenders would result in "stronger banks".
In deciding on the combinations for final mergers, the government has
picked some of the larger and relatively stronger banks to be the "acquirer banks".
The combined entities will control 82 per cent of all public sector
banks and 56 per cent of all commercial bank businesses.
The Punjab National Bank will see itself take over the Oriental Bank
of Commerce and the Kolkata-based United Bank of India. This will form
India's second largest public sector bank, after the State Bank of
India, with Rs 18 lakh crore business and the second-largest branch
The combined business of all three banks is 1.5 times higher than the
PNB's existing business, said Sitharaman.
The merger comes at a time when the PNB is just about recovering from
the near $2 billion Nirav Modi fraud and 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.
The Canara Bank will take over the Syndicate Bank to form the
fourth-largest public sector bank with Rs 15.2 lakh crore business and
the third largest branch network in India. 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 Canara Bank had a relatively lower gross NPA ratio of 8.77 percent
ahead of the merger, while its capital adequacy ratio, as on June 30,
was at 11.7 percent.
The Union Bank of India will take over the Andhra Bank and the
Corporation Bank to become the fifth-largest public sector bank. The
combined advances base of the new bank will be Rs 6.39 lakh crore and
the deposit base will stand at Rs 8.2 lakh crore. Union Bank too has a
high gross NPA ratio of 15.18 per cent and its capital adequacy ratio
at the end of the first quarter stood at 11.43 per cent
The Indian Bank will merge with the Allahabad Bank to become the
seventh-largest with Rs 8.08 lakh crore business. The combined entity
will have an advances base of Rs 3.51 lakh crore and a deposit base of
Rs 4.56 lakh crore. Indian Bank had a bad loan ratio of 7.33 percent
and its capital adequacy ratio at the end of the first quarter was at
Finance Secretary Rajiv Kumar said that the effective date of the
amalgamation will be decided on the decision of the individual banks,
and in consultation with the Reserve Bank of India.
Sitharaman, who had announced PSU bank recap of Rs 70,000 crore in the
budget last month, also announced recapitalisation amounting to Rs
55,250 crore for the PSU banks.
"Rs 55,250 crore capital for credit growth and regulatory compliance
to support economy," she said.
Giving a break-up of which bank gets how much, the Finance Minister
said that the PNB would get Rs 16,000 crore and Rs 11,700 crore will
go to the Union Bank Of India.
The Bank of Baroda, whose merger with the Dena and the Vijaya Bank,
was announced in the last fiscal, would get Rs 7,000 crore and the
Canara Bank would be infused with Rs 6,500 crore. The Indian Bank
would get Rs 2,500 crore, the Indian Overseas Bank Rs 3,800 crore and
the Central Bank of India Rs 3,300 crore.
The UCO Bank will get Rs 2,100 crore, the United Bank of India Rs
1,600 crore and the Punjab & Sind Bank Rs 750 crore.
Sitharaman said that this infusions would be for credit growth and
meeting regulatory needs.
She also said that of the 18 PSBs, 14 had enhanced profitability in
the first quarter of this fiscal, compared to six in fourth quarter of
the last fiscal.
Announcing wider goverance reforms at PSU banks, the Finance Minister
said that their boards will develop a career plan for all senior
positions, while the Chief Risk Officer will be adequately empowered
to decide on matters and act.
Consolidation among public sector banks has been on the agenda for the
NDA government since 2014, when it first came into power. In 2017, the
State Bank of India was merged with five of its associate banks and
the Bharatiya Mahila Bank. In 2018, the government decided to merge
the Bank of Baroda with the Vijaya Bank and the Dena Bank.
The government also allowed the Life Insurance Corporation to acquire
51 per cent in the IDBI Bank.